More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- Proxy Voting RIAs are not required to vote proxies on behalf of their clients. However, when an RIA does assume responsibility for voting proxies, the firm’s policies and procedures should help to ensure that votes are cast in the best interest of clients.
The IRS on Tuesday announced details of a special voluntary disclosure initiative designed to bring offshore money back into the U.S. tax system and help people with undisclosed income from hidden offshore accounts get current with their taxes. The 2011 Offshore Voluntary Disclosure Initiative (OVDI) will be available through Aug. 31.
The announcement followed a Jan. 26 AdvisorOne report that the IRS had announced a new amnesty initiative and would provide details later. An earlier voluntary amnesty program, which ended in October 2009, saw some 15,000 taxpayers come forward covering banks in more than 60 countries. An agency spokesman declined to name leading offshore sites for hidden accounts.
“As we continue to amass more information and pursue more people internationally, the risk to individuals hiding assets offshore is increasing,” IRS commissionerDoug Shulman said in a statement. “This new effort gives those hiding money in foreign accounts a tough, fair way to resolve their tax problems once and for all. And it gives people a chance to come in before we find them.”
The IRS said its decision to open a second special disclosure initiative follows continuing interest from taxpayers with foreign accounts. Since the first voluntary program ended, more than 3,000 taxpayers have come forward with bank accounts from around the world. These will also be eligible to take advantage of the special provisions of the new initiative.
People who did not avail themselves of the 2009 Offshore Voluntary Disclosure Program will be penalized for waiting. “Make no mistake, this [new] program contains a tough set of guidelines,” Shulman said in a statement.
First, participants in the 2011 initiative will have to pay back taxes and interest for up to eight years, as well as accuracy-related or delinquency penalties. In addition, a new penalty framework requires individuals to pay a penalty of 25% of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003-to-2010 time period. This compares with a 20% penalty covering up to a six-year period in the first program.
The IRS is also making other modifications to the 2011 disclosure initiative.
- While most participants face a 25% penalty, taxpayers in limited situations can qualify for a 5% penalty—similar to a provision in the earlier program.
- The agency has also created a new penalty category of 12.5% for treating smaller offshore accounts. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the 2011 initiative will qualify for this lower rate.
Participants in the new initiative have until Aug. 31 to file all original and amended tax returns and include payment for taxes, interest and accuracy-related penalties. This deadline, Shulman said, “means that you need to have filed everything by then.”
The IRS is handling processing of the voluntary disclosures in centralized units to more efficiently process the applications. The agency’s Web site provides an extensive FAQ section to help taxpayers and tax professionals negotiate the OVDI.
An agency spokesman said that the agency had no estimate of potential participants in the new program.
Shulman promised that IRS efforts in the international arena will increase over time. “We are not letting up on international tax issues, and more is in the works,” he said in the statement. “For those hiding cash or assets offshore, the time to come in is now. The risk of being caught will only increase.”