On February 8, 2011, the Internal Revenue Service announced their second voluntary disclosure initiative, giving amnesty for U.S. taxpayers with foreign accounts that will allow them to pay penalties and avoid jail time.

This voluntary disclosure initiative will only be available through August 31, 2011 and will differ from the first program in that it is unlikely to be extended. The new program’s penalties are steeper than those of the 2009 amnesty, so as not to reward those who did not come forward in 2009. Penalties will be as much as 25% of the foreign account’s assets, compared with the 20% penalty of 2009. This program applies to all years included in the 2009 initiative (i.e. 2003-2008) in addition to the 2009 & 2010 tax years, and just as in 2009, those who step forward will owe back taxes and interest on top of the amnesty penalty.

For the 2009 initiative, the IRS created what some practitioners have called a “phantom” 5% penalty for those taxpayers who did not open the foreign account themselves and have not accessed the account during the 6 year look-back period. For 2011 the IRS kept the 5% penalty and added a new 12.5% penalty for people whose offshore accounts or assets did not surpass $75,000 in any calendar year. The IRS is allowing any taxpayer who came forward during 2009 and can demonstrate that they would receive a better deal under the new program to do so.

The IRS has stressed that they are investigating and working with some foreign banks believed to have helped U.S. taxpayers evade taxes, but declined to name any specific institutions.

During the first program, taxpayers merely had to announce their intentions to the IRS by the amnesty deadline. However, taxpayers participating in the new initiative must file all the proper paperwork; including original and amended tax returns, payment for taxes, interest and accuracy-related penalties by the Aug. 31 deadline.

Steven Goldburd is a partner with the law offices of Goldburd McCone LLP and can be reached at 212-302-9400 or http://www.goldburdmccone.com.

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(Steven Goldburd – YWN)