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IRS Expands Focus on Offshore Accounts

Earlier this month, the U.S. Department of Justice (DOJ) announced that it would be broadening its enforcement on disclosure of secret offshore accounts by focusing attention on three of Israel's biggest banks: Bank Leumi Le-Israel, Bank Hapoalim and Miarahi-Tefahot Bank. Just last week, this development led to the indictment of three Israeli-American tax preparers who worked for United Revenue Service, Inc. - a tax preparation firm whose preparers were purportedly helping U.S. taxpayers hide millions of dollars offshore - and more specifically, at two of the banks listed above.

Since the IRS announced the first Offshore Voluntary Disclosure Program in 2009, the Department of the Treasury has collected more than $4.4 billion from taxpayers who opted to participate in the 2009 and 2011 programs. This number continues to grow as the 2011 cases are processed. This recent indictment from the DOJ indicates that the IRS is likely using information collected from taxpayer disclosures to pursue investigations into the financial institutions involved.

Notably, in January, the IRS announced a third voluntary disclosure program, with disclosure requirements that mirror the previous programs. The penalty scheme under this program includes a one-time, 27.5% penalty on the highest aggregate annual balance in the unreported accounts during the look-back period - an increase from the 20% penalty under the 2009 program and a 25% penalty under the 2011 program. If the IRS discovers a taxpayer in violation of the foreign bank account reporting requirements that has not participated in a voluntary disclosure program, potential penalties include the civil fraud penalty (75% of the unpaid tax), failure to file penalties, and penalties for willful failure to file the Report of Foreign Bank and Financial Accounts, IRS Form TD F 90-22.1, also known as the FBAR (the greater of $100,000 and 50% of the foreign account balance).

The filing deadline for the FBAR for foreign accounts held by taxpayers during 2011 is June 30, 2012. Additionally, for tax years 2011 and beyond, the IRS requires that U.S. taxpayers attach Form 8938, Statement of Specified Foreign Financial Assets, to their annual Form 1040. Failure to file a complete and correct Form 8938 by the due date of the tax return can be subject to a penalty of $10,000.

If you are not in compliance with filing requirements or think that you may have a filing requirement of which you are unaware, contact a tax law firm like Brown, PC that can help you determine whether you are at risk.

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