As the Federal government continues its efforts to collect unpaid taxes, the Internal Revenue Service (IRS) started off the new year by announcing a third round of the Offshore Account Voluntary Disclosure (OVDI) program. The first and second rounds of the voluntary disclosure program, in 2009 and 2011, resulted in the collection of over $4 billion in unpaid taxes and the disclosure of over 30,000 offshore accounts.

The IRS credits its offshore bank account disclosure program in raising awareness among dual citizens and others who need to file a disclosure. Those who take part in the 2012 OVDI program will be required to provide the names of bankers and the bank that helped the taxpayer avoid United States tax laws. Penalties for failing to have filed a timely disclosure have also increased under the newly-announced safe harbor program.

2012 Changes From the 2009 and 2011 OVDI Programs 

Few key differences exist from the prior two programs in 2009 and 2011. However, that being said there are still changes, including:

• No set deadline for people to disclose an offshore bank account under the 2012 OVDI program – the IRS may increase the penalties or end the program at any point
• A penalty rate increase to 27.5 percent for the largest accounts – an increase from 25 percent in 2011 and 20 percent in 2009
• A possible lower penalty rate of five percent or 12.5 percent for smaller accounts.

Those with smaller offshore account balances (less than $75,000) in a calendar year may qualify for the lower penalty rates. The disclosure of an offshore bank account must be made on the IRS’s Report of Foreign Bank and Financial Accounts (FBAR) form. With the assistance of an offshore bank account attorney, you can ensure that the appropriate paperwork is completed correctly.

Prosecution for Failing to Disclose Offshore Accounts

Prosecution for the willful failure to disclose offshore accounts and income made from those accounts can result in very serious consequences. Civil penalties can be as much as $100,000 or 50 percent of the value of the account, whichever is greater. A taxpayer may also be charged criminally for tax evasion. If convicted of criminal tax evasion, the sentence can include prison and additional fines. Taxpayers can avoid tax evasion prosecution by utilizing the OVDI program.

Now may be the time to take advantage of the voluntary disclosure program. Because the duration of the current OVDI program is unknown and penalties could increase at any point, it is important to seek the advice of a tax professional sooner rather than later. For those who may have inherited an overseas bank account or hold dual citizenship and maintain a banking account abroad, an experienced international taxation attorney should be consulted for advice on tax filing requirements.