Tax Amnesty Programs
As discussed in a number of previous Tax Alerts, since 2009 the Internal Revenue Service has created three separate tax amnesty programs in order to encourage U.S. taxpayers to properly report and pay taxes on assets held abroad. These amnesty programs require U.S. taxpayers to pay any overdue tax, penalties and interest on unreported income, and pay an additional "in lieu" penalty (the "FBAR penalty") based upon the amount of unreported funds held abroad. The cost of the FBAR penalty has increased successively with each of the three programs such that those who have waited until the current 2012 amnesty program to report their offshore income and assets pay an FBAR penalty of up to 27.5% of those assets as compared to the 20% FBAR penalty paid by participants in the 2009 amnesty program.
Alternatively, many taxpayers have avoided the amnesty programs and the FBAR penalty, and have instead chosen the route of either "quiet" disclosure or "noisy" disclosure in which amended returns for open years are filed that properly report offshore income. Still others have not yet decided to make disclosure of any kind.
The tax amnesty program comes at a significant economic cost, but remains the only way taxpayers can be certain of avoiding criminal prosecution. While many taxpayers who participate in "quiet" disclosure or "noisy" disclosure have underlying circumstances that would not likely lend themselves to criminal prosecution, there is no assurance that the IRS would not recommend particular cases for criminal prosecution.
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