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IRS offers New 2011 Amnesty for International Accounts

While continuing its assault on bank secrecy laws

US tax authorities took a series of sweeping actions during February 2011 in their ongoing pursuit of noncompliant U.S. persons with international financial activities. Among the more notable activities, the U.S:

1) Indicted four Swiss bankers who purportedly worked with various “secret” accounts of U.S. persons;

2) Issued a set of final rules amending the reporting requirements for foreign accounts under the Bank Secrecy Act (“BSA”), which dramatically expands when a US person is required to report their international activities under the BSA; and,

3) The IRS formally announced a second international voluntary disclosure initiative to enable U.S. persons to remedy any prior noncompliance without criminal prosecution after netting approximately 15,000 nonfilers in its first initiative last year.

In a related note, Swiss authorities announced earlier in February that Switzerland would make it considerably easier for treaty partners to obtain information on persons with undisclosed Swiss accounts by eliminating obstacles to the exchange of information in the traditional bank secrecy stronghold. The United States recently became a tax information treaty partner of Switzerland. This informational exchange has been a growing trend on the international scene, which provides the U.S. with more access than ever before to identify unreported international accounts. Consequently, it is imperative that U.S. persons disclose their interests in reportable international accounts as well as immediately correct any prior noncompliance.

Specifically with respect to the 2011 voluntary disclosure initiative, it imposes slightly higher penalties than the prior voluntary disclosure initiative which ended on October 15, 2009, but still allows qualifying participants to obtain certainty about avoiding criminal prosecution and the imposition of penalties by the IRS. The initiative is currently set to expire on August 31, 2011.

The definition of what constitutes an international account is quite broad, and includes all accounts over which an individual or business has signature authority. The definition of who is required to file on behalf of such accounts is quite broad as well, often causing the beneficial owners of accounts legally owned by another (trusts, business entities, etc.) to be reportable by those beneficial owners. DUGGAN BERTSCH can assist you in determining whether you might have a reportable international account.

For Taxpayers seeking to participate in the initiative, the IRS will require the participant to agree with the following terms if the participant otherwise qualifies (i.e., is not currently under an IRS investigation or audit):

1) Payment of a 25% penalty on the highest aggregate annual balance for the unreported international account during calendar years 2003 through 2010 (reduced to 12.5% when the balance in all international accounts does not exceed $75,000 during these years, and reduced to 5% for certain inherited accounts);

2) Payment of any U.S. income tax due on unreported income for an unreported account during the calendar years 2003 through 2010; and,

3) Payment of a 20% penalty on any U.S. income tax due under number two.

Participants accepted into the initiative must file amended returns and make an arrangement for payment of all taxes, interest, and penalties on or before August 31, 2011. Therefore, the time frame for determining whether to participate and arranging for the appropriate filing and payments is relatively short. Hence, prompt action is required if you intend to participate in the initiative.

It is also important to note that Taxpayers accepted into the initiative must also agree to surrender certain defenses in order to participate in the initiative. The surrender of these defenses could result in a significant reduction in the above monetary penalties. Accordingly, the decision regarding whether to participate in the voluntary disclosure initiative ultimately turns on a participant’s facts and circumstances as well as the participant’s risk tolerance with the IRS. Other unpublicized procedures are available to reduce criminal exposure yet retain any defenses you may be entitled to; however, such procedures do not provide the same level of certainty that can be obtained from participating in the initiative.

The disclosure initiative, with its reduced penalty framework, is unlikely to be offered again in the near future. Disclosure to the IRS involves a number of strategic decisions that can have broad implications. Disclosure should not be undertaken without qualified professional assistance.

Lastly, through the Foreign Account Tax Compliance Act (“FATCA”), U.S. tax authorities mandated a new reporting and disclosure requirements on U.S. persons for 2010 and beyond by expanding their reach into a U.S. person’s international activities. Most of these FATCA filings are due over the coming weeks with an individual’s tax return. We addressed this issue in detail in an earlier newsletter last summer. If you have any concerns or issues as your tax return’s become due, please contact our office for more information.

DUGGAN BERTSCH provides counseling, advice, and specific disclosure planning to its clients based upon the client’s individual goals and objectives. DUGGAN BERTSCH has successfully represented clients with international accounts before IRS criminal and civil investigators. We would welcome the opportunity to assist you with your needs.


David Henderson, CPA, JD, LLM