Follow-up on reporting foreign bank accounts
By Michael Nelson
As I discussed in my previous article, the IRS has a voluntary disclosure practice for UBS, which includes the filing of past and current Forms 90-22.1 under the program. Once IRS Criminal Investigations has determined preliminary acceptance into the voluntary disclosure program, the case will be referred to the civil side of the IRS for examination and resolution of taxes and penalties. In order to resolve the case at hand, the IRS has decided to centralize the civil processing of offshore voluntary disclosures, to offer a uniform penalty structure for those who voluntarily come forward, and to help ensure that those who came forward voluntarily are treated consistently and predictably.
The IRS will be using information from the participants under this program to determine how foreign accounts and foreign entities are promoted to U.S. taxpayers as ways to avoid or evade tax. Individuals can utilize the voluntary disclosure when they have undisclosed foreign bank accounts. This will allow the individual to become compliant, avoid substantial civil penalties, and generally eliminate the risk of criminal prosecution. This voluntary disclosure also provides a method to calculate, with a reasonable degree of certainty, the total cost of resolving all of the potential offshore tax issues. By not submitting to the voluntary disclosure, the individual will run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, and an increased risk of criminal prosecution.
The above mentioned Voluntary Disclosure Practice is the longstanding practice of IRS Criminal Investigation of taking timely, accurate, and complete voluntary disclosures into account in deciding whether to recommend to the Department of Justice that a taxpayer be criminally prosecuted. It enables noncompliant taxpayers to resolve their tax liabilities and minimize their chances of criminal prosecution. When a taxpayer truthfully, timely, and completely complies with all provisions of the voluntary disclosure practice, the IRS will not recommend criminal prosecution to the Department of Justice.
I would advise an individual to retain competent tax counsel to assess each person's situation, file past and current Forms 90-22.1, account for the unreported interest income by amending past tax returns, and then have your legal tax counsel initiate contact with the Special Agent in Charge, IRS Criminal Investigation. Great care should be exercised at this point, since the taxpayer's "Statement of Explanation" will have to address any previously unreported or underreported income related to undisclosed foreign accounts, including the reason(s) for the error or omission. The next step will be the follow up by IRS Criminal Investigation on the facts and circumstances to assess the timeliness, completeness, and truthfulness of the voluntary disclosure.
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