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US offshore amnesty extended

06 June 2011

The Internal Revenue Service has put back the deadline on its voluntary disclosure program for overseas bank accounts.

The 90-day extension was announced in a new IRS question-and-answer document issued last week. But it is available only to US taxpayers who "made a good faith effort to comply" but have not managed to collect the necessary forms - in particular, because they live abroad.

By this means, IRS commissioner Doug Shulman is trying to maintain his stance of keeping to the fixed 31 August deadline, while trying to improve take-up of the amnesty among expatriate Americans.

The IRS is also offering some taxpayers who have opted into the programme (officially called the 2011 Offshore Voluntary Disclosure Initiative or OVDI) the chance to change their minds, if they consider the IRS has applied an over-harsh penalty. Taxpayers taking this route must opt out of OVDI once and for all and instead have the case handled under the standard audit process.

In some cases, the IRS admits, the taxpayer may well get a lower penalty by opting out than by using OVDI. Examples might be where he or she failed to report overseas income but there was no resulting tax underpayment, or where he or she did not realise that a disclosure form should have been filed under the FBAR (Foreign Bank Account Reporting) rules.

OVDI, announced in February this year, is less generous than the 2009 amnesty. Those who take it up will have to pay penalties of 25 per cent of the highest total amount in their foreign bank accounts at any time between 2003 and 2010 (reduced to 12.5 per cent where the undisclosed assets never exceeded $75,000). They will also have to pay back-taxes and interest going back eight years, accuracy-related penalties of 20 per cent of all tax underpayments, and penalties for failing to file proper returns. Foreign residents who did not know they were liable to US taxation may escape with a special 5 per cent rate.

 

• Reminder: FBARs for 2010 must be filed by the end of this month.

 

 

Sources

 

IRS FAQ (see para 25.1)

Dow Jones

 

 

 


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