IRS reports big jump in voluntary disclosures of offshore accounts

The IRS is combing through more than 14,000 new disclosures of unreported offshore accounts. A record number of individuals requested to participate in the Service’s recent offshore disclosure initiative, IRS Commissioner Douglas Shulman recently reported. The IRS chief predicted that even more taxpayers will come forward and disclose offshore accounts in the coming months.

Flood of last minute participants

In March 2009, the IRS announced a special initiative to encourage taxpayers to disclose unreported foreign bank accounts. In exchange for full disclosure, taxpayers would be eligible for reduced penalties. The initiative, which the IRS emphasized was not an amnesty program, ended in October 2009.

"The IRS was flooded with voluntary disclosures in the closing days of the initiative," Shulman said. "To put it simply, this is an historic milestone. Our efforts have brought thousands of people back into compliance who had not been reporting offshore assets or income."

Shulman said that taxpayers disclosed unreported accounts worldwide. The bulk of the unreported accounts were in banks in Europe and eastern Asia.

Recovered revenue

The IRS has not indicated how much revenue will be recovered through the initiative. The U.S. Justice Department predicted that taxpayers will pay "tens of millions" of dollars to the U.S. Treasury.

Voluntary disclosures

Although the special initiative has ended, taxpayers can still make voluntary disclosures to the IRS. The reduced penalties in the initiative, however, are no longer available.

The IRS expects taxpayers to show a willingness to cooperate and evidence good faith in paying, in full, any taxes, penalties and interest. Generally, you must come forward voluntarily before the IRS initiates an investigation.

A voluntary disclosure will not automatically guarantee immunity from criminal prosecution but the IRS has indicated that a voluntary disclosure may result in prosecution not being recommended. However, taxpayers with illegal source income should not expect immunity from criminal prosecution.

During the offshore initiative, the IRS discovered that some taxpayers inherited foreign accounts or that immigrants had accounts in their home countries. In both cases, the taxpayers may have been confused or uncertain about their U.S. tax obligations.

If you have any questions about offshore accounts and voluntary disclosure, please contact our office.