According to the recently published report published by the U.S. Government Accountability Office (GAO), the Internal Revenue Service collected almost $5.5 billion from near 38,000 taxpayers who made voluntary disclosures through the IRS Offshore Voluntary Disclosure Program, reporting their foreign bank accounts and assets, and paying taxes for previously unreported income and a penalty (a percentage of undisclosed offshore assets) for failure to disclose foreign accounts. The government opened a voluntary amnesty program for taxpayers with undisclosed offshore accounts back in 2009.
GAO, however, said that according to its analysis, some taxpayers are making “quiet disclosures” to the IRS, reporting for the first time offshore accounts that could appear to the IRS as newly opened accounts, instead of voluntarily entering the amnesty program. Taxpayers making so called “quiet disclosure” filings, would hope to avoid paying any delinquent taxes and penalties, unless otherwise audited. In its analysis of tax filings from 2003 through 2008, GAO said it found “many more potential quiet disclosures than IRS detected.” From 2007 through 2010, the IRS estimates taxpayers reporting foreign accounts nearly doubled to 516,000, GAO said. It raised a concern that the IRS has not researched whether sharp increases in taxpayers reporting offshore accounts for the first time is due to efforts to circumvent monies owed, thereby missing opportunities to help ensure compliance. “Taxpayer attempts to circumvent taxes, interest, and penalties by not participating in an offshore program, but instead simply amending past returns or reporting on current returns previously unreported offshore accounts, result in lost revenues and undermine the programs’ effectiveness”, GAO concluded.
GAO recommended that IRS: (1) use offshore data to identify and educate taxpayers who might not be aware of their reporting requirements; (2) explore options for employing a methodology to more effectively detect and pursue quiet disclosures and implement the best option; and (3) analyze first-time offshore account reporting trends to identify possible attempts to circumvent monies owed and take action to help ensure compliance. IRS agreed with all of GAO’s recommendations.
This report illustrates potential risks of quiet disclosures and government’s intentions to continue fighting offshore tax evasion. Those taxpayers, who still have undisclosed foreign accounts, should consult with tax attorneys to discuss all the available options and evaluate risks of each course of action. Former IRS Attorneys of Holtz, Slavett & Drabkin, APLC, are available to answer your questions. You may contact us to schedule a consultation at (310) 550-6200.