In case you are starting to feel sorry for all those wealthy taxpayers who might go to prison because the Swiss bank where they hid their money (UBS) is about to turn them over to the IRS, rest assured that they will avoid prison if they have any common sense whatsoever. That's because the IRS is temporarily allowing Americans who've hidden their income in offshore accounts to come clean now and face almost no chance of prosecution.
In his statement on the UBS settlement (see related story), IRS Commissioner Doug Shulman reminded taxpayers that the six-month IRS Offshore Income Reporting Initiative, which started on March 23, 2009, will end on September 23. That gives taxpayers only five more weeks to come clean with the government about their offshore accounts.
As a Forbes columnist put it so well: "What's a wealthy tax cheat to do?" According to Commissioner Shulman, they'd better come in to the IRS and disclose their accounts voluntarily before the IRS gets their names some other way.
If taxpayers take advantage of the voluntary disclosure program, they must:
- pay six years of back taxes and interest on any unreported income;
- pay a 20%-25% penalty on those taxes;
- and pay a penalty of 20% of the highest balance of their offshore accounts during the past six years.
By doing so, offshore account owners will avoid much harsher penalties. For example, taxpayers would avoid the penalty for not filing a Foreign Bank Account Report (FBAR), which is 50% of the balance of the account every year, and the fraud penalty, which can be as much as 75% of the tax. In addition, voluntary disclosure will avoid criminal prosecution and possible prison terms.
Once a taxpayer's name is turned over by UBS, it is too late to take advantage of the voluntary disclosure program and "all bets are off." Also, the related agreement with the Swiss government would allow the IRS to get names of taxpayers using Swiss banks other than UBS when the pattern of facts and circumstances is similar to that of the UBS case.
Commissioner Shulman indicated that the IRS currently has no plans to extend the voluntary disclosure program beyond September 23. He urged anyone with undisclosed offshore accounts to contact their tax professional immediately. He noted that the agreement demonstrated that " the world of international taxes has dramatically changed, and people hiding assets and income offshore and from the IRS need to get right with the government now."