Offshore Voluntary Disclosure Initiative

Published By Timothy D. Brown

Offshore Voluntary Disclosure Initiative

On February 8, 2011, the Internal Revenue Service (the “IRS”) announced a second, special voluntary disclosure initiative for taxpayers with unreported income from foreign accounts or assets during the 2003-2010 taxable years. The new initiative, which is intended to enable taxpayers with undisclosed foreign income to become compliant with the U.S. tax system, will only be available through August 31, 2011. The IRS warns that taxpayers who decide not to participate in the new initiative face a high risk of detection by the IRS, the imposition of substantial civil penalties, and an increased probability of criminal prosecution.


In the wake of the U.S. government’s multi-agency effort against UBS to obtain information regarding U.S. taxpayers with “secret” or “undeclared” Swiss bank accounts, in March of 2009, the IRS announced a voluntary disclosure program for taxpayers who voluntarily reported undisclosed offshore income for the 2003 through 2008 taxable years. This program amounted to one of the largest and most significant tax amnesty programs in U.S. tax history.

Under the initial voluntary disclosure program, taxpayers who made a timely disclosure of their
unreported foreign income were required to pay back taxes and interest for the 2003 through 2008 period and either an accuracy or delinquency penalty on the back taxes due for each year. In addition, disclosing taxpayers were required to pay a one-time 20% penalty on the highest aggregate account balance of any amounts held in undisclosed foreign bank accounts. In exchange, the IRS agreed not to pursue criminal prosecution of any taxpayers making a timely disclosure. The initial program expired on October 15, 2009.

The initial voluntary disclosure program resulted in disclosures by approximately 17,000 U.S. taxpayers with foreign accounts held in more than 60 countries worldwide. In addition, since the expiration of the initial voluntary disclosure program, more than 3,000 U.S. taxpayers have come forward to disclose undeclared foreign income and accounts. As a result of these additional, late disclosures, the IRS decided to offer taxpayers a formal last chance at disclosure


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