IRS Extends Deadline for Disclosing Offshore Accounts

by Mike Godfrey, Tax-News.com, Washington

23 September 2009

The US Internal Revenue Service has announced an extension of the deadline for special voluntary disclosures by taxpayers with unreported income from offshore accounts.

The extension, announced by the IRS on September 21, gives taxpayers until October 15, 2009, to make a disclosure.

Under special provisions issued in March, taxpayers with undisclosed offshore accounts originally had until September 23, 2009 to come forward. Those taxpayers who do not voluntarily disclose their hidden accounts by the new deadline face much harsher civil penalties and possible criminal prosecution.

Ordinarily, if IRS agents discover that a taxpayer has not reported an interest in an offshore account or income accruing on such accounts, the IRS may impose penalties of up to 50% of the balance of each offshore account for each year the account remains undisclosed. The taxpayer will also be liable for additional tax on income earned by the foreign account plus interest on the additional tax. Additional penalties may include a fraud penalty of up to 75% of unpaid taxes and a penalty equal to the greater of USD100,000 or 50% of the offshore account balance for willful failure to file a Report of Foreign Bank and Financial Accounts form for each offshore account.

By making a disclosure under the settlement initiative, the taxpayer will be liable for a reduced single penalty equal to 20% of the amount of the offshore account for the one day in the past six years in which the account had the highest aggregate value. However, this penalty could be reduced to just 5% under certain circumstances.

IRS officials decided to extend the deadline after receiving repeated requests from tax practitioners and attorneys around the country following an influx of taxpayer requests.

"By extending the deadline for a short period of time, the IRS is providing relief for those taxpayers who had intended to come forward prior to the deadline, but faced logistical and administrative challenges in meeting it," the agency announced. "The extension will allow tax preparers and attorneys the necessary time to interview and advise their backlog of taxpayers with these hidden accounts, and prepare the necessary paperwork to qualify for the special penalty provisions."

The IRS warned, however, that it has no intention of extending the deadline beyond October 15.

Recommended