IRS Announces Third Special Offshore Voluntary Disclosure Initiative

The Internal Revenue Service (IRS) announced on January 9, 2012 that it has reopened its voluntary disclosure initiative for the third time, in response to the US government's continuously widening investigation of foreign banks relating to unreported offshore accounts of US persons. This third special disclosure initiative follows the IRS's 2009 and 2011 Offshore Voluntary Disclosure Programs (OVDPs) and is available to those taxpayers who did not file in time for the 2009 or 2011 OVDPs. As in the past the OVDPs are designed to bring offshore money back into the US tax system and help individuals with undisclosed income from hidden offshore financial accounts get current with their taxes. This program allows individuals with previously unreported foreign financial accounts to significantly reduce their exposure to substantial civil tax penalties and, in many cases, to eliminate the possibility of criminal prosecution. Foreign accounts include assets held in offshore trusts, foundations, corporations and other entities.

The known countries involved in the US government's investigation include Switzerland, Liechtenstein, India, Singapore, Hong Kong and Israel. The known banks include UBS, Credit Suisse (Clariden Leu), HSBC, Basler Kantonalbank, Wegelin & Co., Zuercher Kantonalbank, Julius Baer, Bank Leumi, Bank Hapoalim, Mizrahi-Tefahot Bank, Liechtensteinische Landesbank AG, and NZB AG. Due to this widening investigation, more and more financial institutions are agreeing to turn over information concerning their clients to the US authorities, whether voluntarily or by Court order or treaty. Earlier this month Wegelin & Co. announced that certain of its bankers were indicted in federal court for assisting US persons with their offshore accounts. Recently, Credit Suisse advised certain of its clients that it will disclose their information to the IRS. It is also expected that HSBC will begin to provide information about its US clients to the IRS. Such information often includes account information dating back to 2002. Another risk to taxpayers who do not report their offshore accounts is the Foreign Account Tax Compliance Act (FATCA) recently passed by Congress, which goes into effect in 2013. Under FATCA, foreign financial institutions will be required to enter into special compliance agreements with the IRS to identify US accounts, report certain information to the IRS regarding US accounts, and withhold a 30-percent tax on certain payments...

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