The Internal Revenue Service (“IRS”) announced yesterday the terms of a new amnesty program for U.S. taxpayers with unreported offshore financial accounts. The 2011 Offshore Voluntary Disclosure Initiative (“OVDI”) will be available through August 31, 2011, and will apply to taxpayers who made disclosures dating back to October 16, 2009.  The 2011 OVDI requires taxpayers to submit complete packages, including amended federal tax returns, by August 31, 2011, so potential applicants should make a disclosure as soon as possible to comply with this deadline.

The terms of the 2011 OVDI are fair, but more punitive than the terms under the 2009 Offshore Voluntary Disclosure Program (“OVDP”). The 2011 OVDI requires taxpayers to report unreported income, interest and penalties for calendar years from 2003 through 2010. In addition, the 2011 OVDI levies a 25 percent penalty on the highest aggregate amount of the taxpayer’s foreign accounts between 2003 and 2010, a 5 percent increase over the penalty imposed under the 2009 OVDP.  The new program permits a smaller 12.5 percent penalty for taxpayers with foreign accounts with aggregate values of $75,000 or less. The OVDI also provides some solutions to problems that have arisen under the 2009 OVDP.

New legislation enacted in 2010 places additional disclosure requirements on U. S. taxpayers. U. S. taxpayers with foreign assets exceeding $50,000 must disclose them to the IRS on the taxpayer’s 2010 federal tax return or face a significant penalty. This disclosure is made in addition to the FBAR reporting requirement and provides further incentives to a taxpayer with previously undisclosed foreign accounts and assets to utilize the OVDI to become compliant for federal income tax purposes.

Carr McClellan represents a significant number of taxpayers under the 2009 OVDP and current OVDI.

If you have additional questions regarding these new developments or have a client that may benefit from a consultation, please contact Brendan Lund at (650) 342-9600 or blund@carr-mcclellan.com