The U.S. Internal Revenue Service (IRS) claims it wants to give offshore tax evaders a big break. The IRS announced on Thursday a plan that lowers a 50% penalty levied on Americans who stash unreported cash overseas to evade taxes.
The I.R.S. says it will "generally not prosecute" taxpayers who come forward voluntarily, provided their money does not flow from criminal activity. And it will not assess a 35% penalty on money secretly transferred to foreign trusts.
How Generous of Them!
The current penalty is up to 50% of the highest annual balance of each offshore bank account for each of the last three years, an amount that can wipe out an investor and still leave him owing taxes and interest.
The I.R.S. says it will reduce that penalty to 5% to 20%, depending in part on whether the wealth was inherited. It will also levy the penalty just once, on the highest balance in the accounts over the last six years.
The goal, Douglas Shulman, the IRS commissioner, said "is to get taxpayers who have been hiding assets offshore back into the system." The plan supposedly was developed after an investigation into alleged tax evasion by American clients of UBS, but will apply to clients of other offshore banks. UBS has refused to turn over the names of an alleged 59,000 of its U.S. clients, citing Swiss bank secrecy laws.
IRS Fishing Expedition
The U.S. government under normal procedures would be obliged to provide hard evidence about a U.S. person before obtaining any information disclosure from offshore banks. In the UBS case the IRS has decided to play hard ball, mounting a major fishing expedition, illogically assuming that any American with an offshore bank account is a tax evader.
U.K.'s Revenue & Customs
At the same time, thousands of British investors with secret Liechtenstein bank accounts will be asked by the U.K.'s Revenue & Customs to come forward voluntarily under a deal to be negotiated next week that could be the first of many worldwide.
Not so generous as the US IRS, Revenue & Customs wants to pry open secret accounts by offering an "offshore disclosure facility", along the lines of a 2007 partial "amnesty" that raised £400 million (US$573 million) from British holders of undeclared offshore accounts.
The U.K. is unlikely to offer immunity from prosecution, but would provide a straightforward mechanism with limited penalties for investors wanting to put their affairs in order.
IRS Echos a 2003 "Amnesty"
This newly announced "amnesty" recalls the 2003 IRS "amnesty" offered to American holders of offshore bank accounts and debit cards. At the time the IRS was engaged in a witch hunt alleging that "millions" of Americans were using offshore debit and credit cards to evade taxes.
When the IRS debit card amnesty ended, only a little more than a thousand persons fessed up.
Offshore Banking Is Legal
Opening an offshore bank account, so long as it is reported, is completely legal under U.S. law, at least at this time. In spite of that unquestioned legality, the IRS has engaged in a decade-long smear campaign to label all offshore bank account holders as suspected tax evaders. U.S. Senator Carl Levin's radical Anti-Tax Haven legislation continues that smear.
Under this latest "amnesty" plan, the IRS will also require taxpayers to pay any taxes and interest owed over the last six years. It will also assess either the standard, accuracy-related penalty of 20%, or a 25% penalty for filing returns late. Taxpayers in the program must also file amended returns for the last six years.
Six Month Deal
Americans have six months to take the deal. Those under criminal investigation for tax evasion are not eligible. While some Americans who enter the program are likely to provide information about the bankers, lawyers and accountants who assisted them, such cooperation is not a requirement to participate, says the IRS.
The IRS claims that it will waive criminal prosecution and fraud penalties for U.S. taxpayers who used offshore accounts to conceal unreported income
Warning: Be Very Careful: Get a Lawyer
A warning to those who may be tempted to partake in this IRS "amnesty." On its face, this could be no amnesty at all.
In most tax amnesties (used with varying success by many U.S. states and some foreign countries), the government waives all criminal and civil penalties in exchange for taxpayers coming clean and paying back taxes owed.
Vernon Jacobs, CPA, (left) a recognized authority on offshore tax matters, warns against rushing into any IRS so-called "amnesty" program. Jacobs points out that U.S. tax laws and IRS rules contain many traps for unwary taxpayers lured by IRS promises. "Any U.S. taxpayer who has any unreported income first should contact a criminal tax defense attorney for a complete review of the person's tax status," says Jacobs. Your lawyer, not you, should approach the IRS.
Volunteers Can Still Be Prosecuted
Jacobs also notes that, although the amnesty provides that a taxpayer only need compute any unpaid taxes for 2002-2008, the IRS may also examine earlier years. Most ominous, he says, is that anyone who voluntarily participates in the program opens himself to the possibility that the IRS will deny the promised amnesty benefits. The IRS can still pursue criminal charges and penalties if it wishes.
Given the enormous investigative powers of the IRS, one has to wonder why there is a need for a questionable IRS "amnesty." If the IRS has proof of its claims of billions of dollars lost in millions of offshore accounts, why not go ahead and prosecute?
The answer is that the IRS has no such proof -- and this amnesty is a public relations ploy to make the agency look as though it is doing its duty. In responding to the amnesty offer, one should keep in mind that well known phrase: "We're from the government and we're here to help you."
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