Last month, the IRS announced that it was adopting consistent guidelines for voluntary disclosure requests of taxpayers that relate to offshore undisclosed accounts and foreign entities. Disclosure issues would be settled, with the taxpayer being subject to the imposition of taxes and interest for the prior 6 years, with the taxpayer filing or amending all returns for that period, including required FBAR returns. Late tax payments will still be subject to accuracy or delinquency penalties, and no reasonable cause exception will be allowed. However, all other penalties will be waived, and no criminal prosecutions will apply, other than a 20% penalty based on the highest aggregate foreign account or foreign asset value (or 5% in some circumstances).
The IRS has now issued written FAQ responses that flesh out the details of these offers. Highlights of the FAQs include:
A. The time limit for the offer is for six months only – through September 23, 2009;
B. The offer is open to all taxpayers that comply with IRS's terms, including corporations, partnerships and trusts. The offer does not apply if IRS has initiated a civil examination of the taxpayer, regardless of whether it relates to undisclosed foreign accounts or undisclosed foreign entities.
C. The settlement offer should not be used by taxpayers that have properly reported all of their taxable income but have not been filing FBARs in prior years to report a personal foreign bank account or to report the fact that taxpayers have signature authority over bank accounts owned by their employers. These taxpayers are advised to file the delinquent FBAR reports and attach an explanation of why the reports are being filed late. The FAQ indicates that no penalties will be imposed for the failure to file the FBAR.
The IRS has indicated that it will attempt to identify taxpayers that do not submit a voluntary disclosure offer, but instead simply file amended returns and pay related tax and interest under a “quiet" disclosure. Such taxpayers who follow the “quiet" disclosure route are at risk for civil examination and criminal prosecution. Taxpayers who have already taken the "quiet" disclosure route can still make a voluntary disclosure under the above guidelines.