CHICAGO, Illinois – February 9, 2011 – The IRS announced yesterday a program for taxpayers who failed to disclose an interest in a foreign bank account and who failed to come forward to the IRS during the 2009 IRS Amnesty Program. Under the threat that taxpayer information may be revealed by foreign banks, the IRS is making these individuals know that he or she has one last chance to come clean through the IRS Voluntary Disclosure program, or risk criminal prosecution.

Under the current structure, and if certain conditions are met, a taxpayer who comes forward to the IRS between now and August 31 will be subject to the following guidelines:

  • The taxpayer will not be criminally prosecuted;
  • The taxpayer will be required to pay a penalty equal to 25% of the highest account balance during the 2003 through 2010 period; except the penalty will be reduced to12.5% for accounts where the balance did not exceed $75,000 during the 2003 through 2010 period; and
  • The taxpayer must pay back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

The 25% penalty is actually below the 30% Chicago tax attorney Robert E. McKenzie suggested last October when he called for a new voluntary disclosure initiative in an article published by Forbes.com. McKenzie is a partner with the Chicago law firm of Arnstein & Lehr LLP.

Adam Fayne, also a partner with Arnstein & Lehr and a former IRS attorney and special assistant United States attorney, notes that, "While the above penalty framework sounds harsh, it pales in comparison to being caught by the IRS involuntarily. If a taxpayer is discovered to have an unreported foreign bank account, the amount of the penalty could be as high as fifty-percent (50%) of the highest value of the account for each of the past six (6) years. In addition, the individual risks being prosecuted criminally by the Department of Justice. Criminal prosecution could lead to higher penalties and incarceration."

McKenzie notes that even those taxpayers who have made what is known as "quiet disclosures" – they have quietly mailed in amended tax returns including their offshore accounts and the income from them - could participate in the new initiative. However, "if they chose not to and they are later identified, the IRS may recommend criminal prosecution. That is a change from the traditional IRS practice of not prosecuting those who voluntarily amend returns, even if it is in a quiet disclosure," he said.

Both McKenzie and Fayne have represented a large number of individuals, nationally and internationally, who have made a voluntary disclosure before and after October 15, 2009.

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