In early 2011, the IRS announced their second Offshore Voluntary Disclosure Initiative, which is designed to bring offshore money back into the United States tax system. The idea is to help those who have hidden accounts overseas to bring their money back to the US and become current with their taxes.
Then again in early 2012, the IRS announced it would be reopening the voluntary disclosure initiative for the third time. This is in response to the US government’s ongoing investigation of foreign banks relating to unreported offshore accounts involving US taxpayers.
Updates to the New Initiative
The new initiative is similar to the 2011 program but with a few key differences. The main difference is there is no longer a deadline for taxpayers to apply to the program. This is which a caveat that the IRS has indicated they may change the program details at any time. This means they could increase the penalty amount or cancel the program at any time.
The next key difference is that individuals will have to pay a penalty of 27.5% of the amount in the foreign bank account in the year with the highest aggregate account balance covering the 2003 to 2010 time period. This is an increase from the 20% in the first program and 25% in the 2011 program.
In some cases, taxpayers will be eligible for 12.5% or 5% penalties, similar to the 2011 program. Participants must also pay back taxes and interest for up to eight years, as well as paying accuracy related and delinquency penalties.