by Brian Mahany
The first two offshore voluntary disclosure programs did not generate much participation. Although the IRS calls them a success, just a small percentage of the eligible participants came forward. While no one knows for sure how many people have unreported offshore accounts, the umber is believed to be at least 500,000. Using that figure, less than 10% of eligible taxpayers have come forward since the first amnesty was offered in 2009. (For the purists among our readers, there was a similar program even before the 2009 Offshore Voluntary Disclosure Program thus making this number “three and a half'”!)
Why the low participation rate? From the calls that we receive, most people have no idea that their foreign bank accounts had to be reported. America is a melting pot and there are tens of millions foreign born Americans, greencard holders and dual nationals living here. The stereotypical “fat cat” wealthy Americans with money stashed in Swiss accounts are only a small percentage of people with offshore accounts.
Like the previous 2 IRS tax amnesty programs, this one avoids the risk of jail and greatly reduces the civi penalties. Participants in this program will have to pay a 27.5% penalty of the aggregate highest balance of unreported accounts over the last 8 years. The 2011 program, called “OVDI”, had a penalty of 25%. The 2009 program had a shorter look back and even lower penalties – just 20%. For those who know they have unreported accounts and are merely sitting on the fence waiting for a better deal, that isn’t likely to happen. It’s clear that the penalties get stiffer with each new amnesty.
Like the prior two IRS amnesty programs, there are greatly reduced penalties for people with smaller accounts (under $75,000) and what I call “accidental Americans” – foreign residents who were unaware they were American citizens. That sounds crazy but in our mobile society it happens quite frequently.
For some people who can demonstrate that they truly were unaware of the filing requirements, amnesty may not be the best deal. The IRS still offers a “voluntary disclosure program” which usually involves an audit and negotiated settlement.
Doing nothing or just amending old returns and hoping not to get caught are the least attractive options. The IRS is gaining access to more and more foreign account data and the risks of getting caught increase daily. If the IRS finds you first, expect at least a 50% penalty – the IRS can actually impose penalties of 50% per year and throw you in jail if they prove your actions were willful.
There is no deadline for the current program but remember, the IRS operates on a first contact policy. If they find you first its too late to file for amnesty. The IRS can also change the terms of the current program at any time but for the immediate future, that’s not likely.
If you have an unreported foreign bank account, brokerage account, foreign CD, haven’t filed FBARs (Reports of Foreign Bank or Financial Account) or have questions about the OVDP amnesty or the new FATCA law (Foreign Account Tax Compliance Act), contact a tax attorney or accountant fluent in offshore reporting issues.
The tax lawyers at Mahany & Ertl have helped people across the U.S. and around the world with a wide variety of overseas tax reporting issues. For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at All inquiries are kept in strict confidence and protected by the attorney client privilege.
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