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IRS Announces New Amnesty Initiative for Offshore Accounts

Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A.

Recently, the IRS announced the 2011 Offshore Voluntary Disclosure Initiative (OVDI), which is a welcomed and anticipated development.  This initiative enables people with undisclosed income from previously unreported and untaxed offshore accounts to come forward voluntarily and receive a degree of relief from both civil penalties and even what could otherwise be criminal prosecution.  The new initiative runs from now until August 31, 2011 and follows a similar IRS initiative that expired in October 2009.  Many people who did not respond to the first IRS initiative may want to consider this one now.  Increasingly, the IRS seeks to identify people with offshore accounts who have escaped U.S. taxation and proper reporting of those accounts.

Generally, people who have foreign accounts must report the income earned on those accounts on their requisite income tax returns and also file other information returns.  U.S. taxpayers are taxed on worldwide income from all sources including interest, and dividends, and even capital gains and generally must be reported on Forms 1040 for individuals, Forms 1120 or 1120S for corporations, and Forms 1065 for partnerships and limited liability companies.  Equity interests in foreign corporations and other entities and trusts must be reported on other IRS forms such as Forms 5471 and 3520, respectively.  Treasury Form TD F 90-22.1 commonly known as “Foreign Bank Account Report” or “FBAR” must be filed to report foreign accounts.  “Failure to report foreign accounts could trigger civil consequences ranging from the tax on those accounts, plus penalties of up to 50 percent of the account balance for each year,” said Krugliak Wilkins Akron tax partner David Lewis.   He added, “What's worse, the entire foreign account balance could be lost to civil penalties and, even criminal charges could result.”

Mr. Lewis represented clients throughout the United States in the first round of IRS voluntary disclosures that expired in October 2009.  Although the current IRS OVDI is not as beneficial as the expired program, it still offers considerable benefits.  “Under the new program, for failure to file the FBARs, the penalty could be a single 25 percent of account balances for those with balances of $75,000 or more but for taxpayers with foreign account balances of less than $75,000, there is a break in the penalty rate to 12.5 percent,” he explained.  Of course, back taxes and interest must also be paid but limited to the years 2003 and later under the new initiative.

The risk of discovery by foreign financial institutions who share information with the IRS will make it much harder for taxpayers to hide offshore accounts.  This initiative will allow taxpayers to make voluntary disclosures and come into compliance.  “Criminal prosecution could likewise be averted,” Mr. Lewis observed.  Added Mr. Charles Ringer of the firm, “We strongly recommend that anyone with an unreported offshore account should evaluate this opportunity as soon as possible”.

If you have questions about this release, please contact either attorney David J. Lewis whose email address is dlewis@kwgd.com at Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A., 50 S. Main Street, Akron OH  44308 and telephone (330) 535-4830. 
Founded in 1958, Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A., serves clients across northeast Ohio in many areas of the law including:  Corporate and Business Law, Real Estate and Construction, Labor and Employment, Employee Benefits, Workers’ Compensation, Commercial Lending and Finance, Taxation, Health Care, Environmental Law, OSHA, Oil & Gas, Intellectual Property, Trusts and Estates, and Litigation in all areas.  It maintains offices in Akron, Canton, Alliance, New Philadelphia, and Sugarcreek, Ohio.   For more information visit www.kwgd.com.

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