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IRS Amnesty Lets Offshore Cheats ‘Come in Before We Find Them’

Feb. 9 (Bloomberg) -- U.S. taxpayers with hidden offshore accounts have until Aug. 31 to decide whether to disclose their holdings to the government without being criminally prosecuted, the Internal Revenue Service said.

The voluntary disclosure program announced yesterday will require those who come forward to pay up to 25 percent of the highest annual amount in the account from 2003 through 2010, plus back taxes, interest and other penalties for those years. Tax attorneys said new bank-disclosure requirements that take effect in 2013 could make the offer enticing.

“This may be the last window of opportunity for people to come in and clean this up,” said Scott Michel, an attorney at Caplin & Drysdale in Washington.

The program is part of the U.S. government’s efforts to crack down on tax evasion through offshore accounts. A similar program that ended in October 2009 attracted about 15,000 taxpayers who avoided prosecution by paying taxes on six years of undeclared income, plus a 20 percent penalty.

“It gives people a chance to come in before we find them,” IRS Commissioner Douglas Shulman said on a conference call with reporters yesterday. He said the IRS is continuing to investigate “a number of” banks outside the U.S., and that some of the inquiries are at “quite advanced” stages.

The first 2,000 cases that were closed from the 2009 amnesty initiative generated almost $400 million in revenue, Shulman said. Failure to disclose accounts and filing false tax returns are crimes that carry prison terms and fines of up to $500,000, according to the IRS.

Less-Generous Terms

Another 3,000 taxpayers declared their accounts after the initial program ended. They will be eligible for the new program, which has less-generous terms, according to Shulman, who said Dec. 9 that the IRS was considering a second disclosure period.

“People who waited out the 2009 initiative will not be rewarded for waiting,” Shulman said.

Barbara Kaplan, an attorney at Greenberg Traurig LLP in New York, said she doesn’t expect as large a response from taxpayers this time, unless the IRS announces investigations involving specific banks.

“Until the pressure is really on and it’s public, people who didn’t opt in before are not going to opt in now,” she said.

Growing Risk

The IRS urged taxpayers to disclose their accounts before new reporting requirements for overseas banks and changes to tax treaties give the government more information it can use to refer criminal cases to the Department of Justice.

Under the new disclosure requirements, banks based outside the U.S. face 30 percent withholding on certain payments from inside the U.S. if they do not share information on account holders with the IRS.

Shulman said IRS investigators have been tracking the migration of assets from Europe into Asia.

“As we continue to amass more information and pursue more people internationally, the risk to individuals hiding assets offshore is clearly increasing,” Shulman said. “We wanted to give people a chance while we have other banks under our sights.”

Banks in Hong Kong and Singapore will be a focus for the IRS, Michel predicted. The combination of stricter enforcement and the new bank-disclosure rules will make it tougher for U.S. citizens to have undisclosed accounts in overseas banks.

Straightening Out ‘Mess’

Edward M. Robbins Jr., an attorney at Hochman, Salkin Rettig, Toscher & Perez P.C., in Beverly Hills, California, said clients tell him they’re wary of coming forward because many of their friends with offshore bank accounts aren’t.

“You need to get this mess straightened out if you’re smart, sooner rather than later,” he said.

Under the new program and the previous one, some taxpayers can qualify for reduced penalties as low as 5 percent. For the new program, that category includes people who inherited accounts that they haven’t actively managed.

Unlike the 2009 program, the new initiative includes a separate penalty category for people who never had more than $75,000 in offshore accounts. They will be eligible for a 12.5 percent penalty. Taxpayers who participated in the 2009 program with account levels under that threshold can qualify for the reduced penalty, Shulman said.

Taxpayers already being audited can’t participate in the program, nor can those who disclosed accounts in the 2009 program. Those who have made “quiet” disclosures by amending previously filed tax returns can apply.

Kaplan and Michel said they expected that many taxpayers will have difficulty getting all their paperwork together by the Aug. 31 deadline. Shulman said taxpayers shouldn’t expect leniency with that deadline.

The IRS started its disclosure programs amid efforts to crack down on offshore tax evasion fostered by UBS AG, Switzerland’s largest bank.

Sanford Millar, a tax lawyer in Los Angeles, said the new program might appeal to people who did not have UBS accounts and are now seeing the IRS pursue other financial institutions.

To contact the reporter on this story: Richard Rubin in Washington at

To contact the editor responsible for this story: Mark Silva at

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