[IMGCAP(1)]Although the initial flurry of publicity surrounding the leak of the Panama Papers has subsided somewhat, the release serves as a reminder that there’s a real problem for taxpayers still holding offshore accounts that they haven’t reported, according to Ivan Golden, an attorney at Schiff Hardin LLP.

“They’re at serious risk of discovery and should carefully consider disclosing their accounts before it is too late,” he said.

And while few American taxpayers were reportedly named in the Panama Papers, most experts believe the release, from one Panamanian law firm, is just the tip of the iceberg and that further information on “secret” offshore accounts will undoubtedly be forthcoming. The Justice Department is continuing to investigate offshore tax evasion in jurisdictions beyond Switzerland using information gathered in the Swiss Bank Program.

Tax preparers should be aware of the approaching FBAR filing deadline of June 30. Not only are taxpayers required to declare any foreign accounts and report the income from them on their tax returns, they also must file the FBAR (Foreign Bank and Financial Accounts Report) form with the Financial Crimes Enforcement Network. Preparers that know of an overseas account who fail to include it on their client’s return could be liable for criminal penalties, as well as penalties for filing an incorrect return.

The penalties on the individual taxpayer can be enormous, reaching the greater of $100,000 or the total amount in the account for willful violations. Penalties are cumulative, with each year of noncompliance subjecting the taxpayer to additional penalties.

The IRS’s Offshore Voluntary Disclosure Program may entitle the taxpayer to lesser penalties. “Taxpayers are almost always going to get better treatment if they come forward voluntarily as opposed to having their accounts discovered by the government,” said Golden.

Although the terms of the OVDP have gotten less favorable now than when they were introduced in 2009, the good news is that it is still possible to make a disclosure on relatively favorable terms, Golden indicated. “The bad news is that the IRS has hinted that taxpayers’ ability to disclose offshore accounts while paying relatively modest penalties may not last forever.”

“It’s interesting that over time the terms of the OVDP have gotten less favorable. They had a six-year look-back and a 20 percent penalty based on the aggregate high value of the offshore account,” Golden noted. “Now it’s an eight-year look-back and a 27.5 percent miscellaneous penalty, or as much as 50 percent if the bank is already under investigation.”

For less culpable, or non-willful, taxpayers, streamlined procedures exist under which the taxpayer files three years of delinquent returns and six years of FBARs, with a miscellaneous penalty of at most 5 percent of the highest aggregate balance in their offshore accounts, according to Golden.

“Since the OVDP’s introduction in 2009, the IRS has received more than 54,000 voluntary disclosures and more than 30,000 streamlined disclosures and has collected more than $8 billion in tax in tax, penalties and interest,” noted Golden. “U.S. taxpayers, including those who live overseas, who still have undisclosed foreign income, assets or accounts should carefully consider making a voluntary disclosure while they are still able to do so,” he said.

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