The IRS has announced its second special voluntary disclosure initiative for U.S. taxpayers with unreported foreign bank accounts. The new program, called the 2011 Offshore Voluntary Disclosure Initiative (OVDI) is not to be confused with the first disclosure initiative called the 2009 Offshore Voluntary Disclosure Program (OVDP) – boy the IRS loves acronyms. Under the new program tax cheats can avoid jail time by agreeing to pay 25 percent of the highest account balance over the last eight years as well as back taxes, interest, and delinquency penalties. The 2009 program was very similar, requiring 20 percent of the highest value over the past six years and generated 14,700 disclosures.
Our perspective on the new program may be a little different than others. Of the several offshore account cases we have handled for tax whistleblowers, not one of them had a taxpayer that participated in the 2009 Disclosure Initiative (as far as our well-placed insiders can tell). Given the difficulties the IRS has had in obtaining quality information on the accounts in question, including the UBS cases, it suggests to us that even fewer high-income taxpayers will come forward under the harsher initiative. In cases where the taxpayer actively sought to avoid U.S. taxes, the taxpayer often believes they are smarter than the average bear and will not be caught up in information sharing. These are not cases where someone inherited Grandpa’s Swiss account, they involve active tax evasion. In these instances, a well-informed tax whistleblower can mean the difference between conviction and non-detection. While it is great that the IRS is stepping up use of all of its enforcement tools, there is a danger that the IRS may focus on the little fish that voluntarily swim into the net.
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