The Internal Revenue Service reopened its Offshore Voluntary Disclosure Program to encourage more taxpayers with assets in undeclared foreign bank accounts to come forward.

Doug Shulman

The IRS has introduced a series of such programs in recent years, and this is the third program. Unlike the two previous iterations, the program is set to last for an indefinite period of time. The IRS needed to extend both of the previous OVDP programs beyond their original deadlines in 2009 and 2011.

However, the IRS said that hundreds of taxpayers are continuing to come forward with disclosures. So far, the IRS has collected $4.4 billion under the two programs, with $3.4 billion under the 2009 program and $1 billion under the 2011 program. The IRS is continuing to collect money under both programs, though it has already closed about 95 percent of the cases still left over from the 2009 program.

The 2011 program had stiffer penalties for taxpayers than the 2009 program. The new program also has higher penalties for some taxpayers than the 2011 program, which was originally set to expire last September.

The IRS said it has reopened the OVDP after seeing continued strong interest from both taxpayers and tax practitioners in the earlier programs. One reason for that strong interest has been the IRS’s ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion. They recently charged a trio of Swiss bankers with conspiring with U.S. taxpayers to hide more than $1.2 billion in assets from the IRS (see Swiss Bankers Charged with Helping Hide More than $1.2B from IRS).

“Our focus on offshore tax evasion continues to produce strong, substantial results for the nation’s taxpayers,” said IRS Commissioner Doug Shulman in a statement. “We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation’s tax system.”

The new program is similar to the 2011 program in many ways, but with a few key differences. Unlike last year, there is no set deadline for people to apply. However, the terms of the program could change at any time going forward, the IRS cautioned. For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers—or decide to end the program entirely at any point.

“As we’ve said all along, people need to come in and get right with us before we find you,” Shulman said. “We are following more leads and the risk for people who do not come in continues to increase.”

In all, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures. Those who have come in since the 2011 program closed last year will be able to be treated under the provisions of the new OVDP program.

The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category.

For the new program, the penalty framework requires individuals to pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure. That is up from 25 percent in the 2011 program. Some taxpayers will be eligible for 5 or 12.5 percent penalties; these remain the same in the new program as in 2011.

Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

Participants face a 27.5 percent penalty, but taxpayers in limited situations can qualify for a 5 percent penalty. Smaller offshore accounts will face a 12.5 percent penalty. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVDP will qualify for this lower rate. As under the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.

The IRS said its success in offshore enforcement and in the disclosure programs has raised awareness of tax-filing obligations, including awareness by dual citizens and others who may be delinquent in filing, but owe no U.S. tax. The IRS said it is currently developing procedures by which these taxpayers may come into compliance with U.S. tax law and is also committed to educating all taxpayers so that they understand their U.S. tax responsibilities.

More details will be available within the next month on IRS.gov. In addition, the IRS will be updating key Frequently Asked Questions and providing additional specifics on the offshore program.