U.S. IRS Offshore Voluntary Compliance Initiative

The IRS has initiated a Program, effective January 14, 2003 and ending three months later, on April 15, 2003, permitting U.S. taxpayers who have used offshore accounts and other financial arrangements to avoid reporting, or to under report, taxable income, to come forward, report the income and avoid many of the otherwise applicable civil and criminal penalties and related costs. Rev. Proc. 2003-11 (Jan. 14, 2003). The Program is aimed at taxable years 1999-2002. Years prior to 1999, in certain circumstances, may not be subject to scrutiny, but taxpayers nonetheless will have the provide information about their involvement in offshore financial arrangements during these years. The interest and penalties imposed will depend on the amount of the unpaid tax liability, the years involved, whether a return was inaccurate or if a return should have been filed and was not. By way of example, a taxpayer who understated his income to avoid $100,000 in taxes in 1999 would wind up paying $149,319. This includes the tax liability plus $29,319 in interest and an additional accuracy-related penalty of $20,000. If a taxpayer did not step forward, his tax liability generally would include the civil fraud penalty of $75,000, and therefore higher interest of $42,758. The total amount due would be $217,758, without considering probable additional civil penalties for failure to file certain information returns. Also, without coming forward, the taxpayer must worry about possible criminal penalties.