by Brian Mahany
For years, the IRS has operated on a very simple principal. “Get to us before we get to you.” If you owed the government or fudged some numbers on a return, you could avoid jail and maybe even some penalties by voluntarily stepping forward and coming into compliance. In other words, if you contacted the IRS first you could usually avoid prosecution. Until now.
Everyone agrees that if you wait for the knock on the door its too late. Even if you had amended returns ready for filing, if the IRS contacts you first, prosecution remains a good possibility.
This arrangement makes sense. We want a system that does not overly penalize someone for simply wanting to do the right thing, even if they owe millions. If people are afraid they will be punished and tossed in jail for coming forward to fix a mistake, no one would have any incentive to make good. Our tax system based on voluntary compliance would be considerably weakened. Hence the “first contact” policy.
That policy has worked for years and thousands of delinquent taxpayers come forward every year knowing that by doing so, they avoid jail. One of those taxpayers was Michael Schiavo, a director at Boston Bank and Trust Company. According to the federal complaint filed today, Schiavo came forward on October 6th, 2009 after widespread media accounts of the IRS’ investigation of Swiss bank UBS.
Schaivo made what is called a silent disclosure with the IRS and disclosed his HSBC Bermuda account. Unfortunately, he did not disclose some unreported income he had. Remember, there is a difference between an unreported account and unreported income.
According to the information (criminal charge), the IRS warns on its website that those who make silent disclosures of unreported accounts risk criminal prosecution.
That’s a major shift in policy and a major incentive to take part in the current last chance offshore tax amnesty program, called the Offshore Voluntary Disclosure Initiative. Time is running out, however. The program ends August 31st.