The Internal Revenue Service will let taxpayers with undeclared offshore accounts apply for a 90-day extension of the Aug. 31 deadline for coming forward.
The change, announced on the IRS website today, would let taxpayers seek the extension in writing by showing that they have made a “good-faith attempt” to meet the deadline and explain what information they are missing.
“This would be a welcome relief to many taxpayers,” said Barbara Kaplan, an attorney at Greenberg Traurig LLP in New York. “There is difficulty in getting the records together.”
The IRS is conducting its second voluntary offshore disclosure program, allowing taxpayers to pay penalties related to undeclared accounts to avoid criminal prosecution. The program requires those who come forward to pay as much as 25 percent of the highest annual amount in the account from 2003 through 2010, plus back taxes, interest and other penalties.
The IRS announcement also included a new category of taxpayers who could qualify for a reduced 5 percent penalty applying only to unreported financial assets, said Scott Michel, an attorney at Caplin & Drysdale in Washington. Non-U.S. residents who comply with home-country tax laws and had $10,000 or less in U.S. income in each relevant year can qualify for that rate, which was already available to some people who inherited accounts.
‘A Way Back’
“This is very, very big because there are hundreds of thousands of Americans living overseas who are compliant in their home country but have not filed U.S. tax returns,” Michel said. “It gives them a way back into compliance in the U.S.”
In announcing the disclosure program earlier this year, IRS Commissioner Douglas Shulman had emphasized the importance of meeting the deadline.
“You’re going to need to provide all of your paperwork by Aug. 31,” he said on a conference call with reporters Feb. 8.
In the information provided today, the IRS said taxpayers who want extensions must apply for them and explain steps they are taking to obtain missing information.
“The deadline is still Aug. 31 and it is important and we expect that most taxpayers will meet the deadline,” IRS spokesman Anthony Burke said in an e-mailed statement. “We have received feedback about some difficulties in meeting the deadline and we wanted to provide an opportunity to those taxpayers that make a good-faith effort to meet it to come in.”
That flexibility recognizes the difficulty of compiling the necessary information, Kaplan said.
“The computations are difficult and sometimes getting complete records is difficult, particularly if you’re dealing with countries that are not accustomed to maintaining banking records the way the U.S. is,” she said.
A similar program with more generous terms that ended in October 2009 attracted about 15,000 taxpayers. They avoided prosecution by paying taxes on six years of undeclared income, plus a 20 percent penalty. About 4,000 taxpayers have come forward since October 2009, and their cases will be considered under the terms of this year’s program.
A new law requiring banks based outside the U.S. to provide the IRS with information about U.S. account holders will take effect in 2013.
In addition to the offer of extensions, the IRS provided updated information that helps taxpayers decide whether to opt out of the civil settlement framework in the program.
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