IRS Tax Amnesty Program
IRS Tax Amnesty Program
What is a tax amnesty program?
A Tax Amnesty program can provide full tax relief, but typically such a program has a very short window of opportunity. The goal of an amnesty program is for the government to collect as much tax revenue as possible within a short period of time. Typically this timeframe is 2-3 months. The advantage to paying taxes during the amnesty program is that the state or federal government will waive penalties and interest during this time. The program is also an opportunity for taxpayers to file late returns, make revisions, or pay off a balance in full.
Most recent amnesty program:
Update: The Wall Street Journal recently reported that over 15,000 Americans took advantage of this last amnesty program for taxpayers with undisclosed offshore accounts.
Here are some details on the program:
On February 8, 2011, the Internal Revenue Service (IRS) announced an IRS amnesty program called 2011 Offshore Voluntary Disclosure Initiative (OVDI). The amnesty program is for taxpayers with unreported foreign financial accounts, entities, or income. The OVDI limits the potential penalties associated with the failure to disclose foreign accounts, assets, and foreign income. The 2011 OVDI limits taxpayers with undisclosed offshore accounts and assets exposure to civil penalties. Outside of the OVDI program, U.S. taxpayers discovered with unreported foreign bank accounts, unreported foreign income, and certain undisclosed foreign assets face the possibility of paying harsh penalties such as:
- A penalty for failing to report a foreign account which could be as high as the greater of $100,000 or 50% of the total balance of a foreign account in each year held
- A fraud penalty equal to 75% of an unpaid tax
- Penalties for the failure to file information returns.
The IRS extended the amnesty program deadline for offshore voluntary disclosure initiative (OVDI) requests until Sept. 9, 2011, because of the potential impact of Hurricane Irene on taxpayers.
There are several circumstances when offshore accounts may look favorable:
- Offshore corporations and limited liability companies are often set-up for international trading and asset protection and can help to manage taxes on foreign income. There are certain tax flexibilities and advantages that are allowed for these offshore accounts. It’s best to consult with an IRS attorney to find out what legal benefits these accounts can offer.
- Trusts that are set-up offshore are usually a part of an estate planning process and help keep future and current creditors at bay. This is an ideal way to protect funds for family heirs and descendants. An offshore trust is advantageous, as it can remain confidential to other parties.
- Private foundations that are established offshore operate much in the same fashion as a trust, and operate similarly to a company. Offshore, they can be protected against excess taxation and the claims of creditors.
Have questions regarding a prior or future IRS tax amnesty program? Any one of our IRS tax attorneys can provide you with a free one on one consultation to discuss your options. Contact us today. (800) 669-4775
The IRS 2011 Offshore Voluntary Disclosure Q&A page is a good place to start. About.com has helpful information on what you should know before applying for tax amnesty. Need to know what your local state laws might be? Head to Google and do a local search.