If you've been hiding funds in offshore accounts, you now have until Oct. 15 to apply to the IRS for amnesty and avoid stiffer penalties. That's an additional 22 days from the original deadline of Sept. 23. So far, the amnesty program in 2009 has enticed 3,000 taxpayers to voluntarily admit they were hiding funds offshore. That's a huge crowd compared to the 90 who filed for amnesty in 2008.
The primary reason people are coming forward is likely that the IRS began prosecutions in 2009; so far, two UBS (UBS) bankers, five of UBS's U.S. clients, a Liechtensteiner adviser, a Swiss lawyer and a manager at Zurich-based Neue Zuercher Bank are facing prosecution. UBS paid the U.S. government $780 million in fines, penalties, interest and restitution in February, and turned over about 250 names to get the ball rolling. Based on an agreement reached with the U.S. in August, UBS will soon turn over 4,450 more client names.
People can only get amnesty if they apply voluntarily before the IRS gets their names. So for those holding out to see if their name will be on the list, by the time you find out, it could be too late.
What's the difference? During the amnesty program, taxpayers who come forward voluntarily will pay between a 5 and 20 percent penalty on taxes owed on their offshore accounts. That penalty will be based on the highest balance in the last six years. Those who don't come forward and get caught by the IRS will pay penalties of up to 50 percent per year -- and that's on each of the years one had the offshore account. So anyone who has held an account for more than two years could owe more than the amount of money in the offshore account. In addition, if the IRS catches you, you could face criminal prosecution.
To avoid penalties, taxpayers were supposed to file an annual Report of Foreign Bank and Financial Accounts for any account held offshore worth more than $10,000. It's not just UBS clients who are at risk. Using the amnesty applications, the IRS is identifying other banks and financial advisers in Switzerland and elsewhere that have been helping American taxpayers hide funds. So even if your offshore accounts are held at a bank other than UBS, your name could come up during the investigations.
Earlier in September, the IRS decided to shift the audits of wealthy Americans suspected of offshore tax evasion to its elite division that examines businesses. The IRS posted internal job listings seeking auditors to work for a newly created office within its Large and Mid-Size Business division that will monitor what the IRS called the "global high-wealth industry."
We've all known for years that many wealthy Americans use sophisticated schemes to avoid taxes. Some of those schemes are legal and some are not. Clearly, the IRS intends to use the data from UBS aggressively to catch bankers and lawyers who've helped wealthy Americans illegally evade taxes, as well as the tax evaders.
Lita Epstein has written more than 25 books, including The Complete Idiot's Guide to Tax Breaks and Deductions.
Want to succeed? Then you need goals!View Course »