UBS and the IRS’ Voluntary Disclosure Program
Posted on 17. Aug, 2009 by Stefani in News, Tax
John McCarthy, a California businessman, became the 4th person to be charged in the UBS tax-evasion case. According to the plea agreement, Mr. McCarthy used his UBS account to transfer over $1 million from his California firm. He admitted to not paying at least $200,00 in federal income taxes.
McCarthy was one of about 300 UBS clients whose names were turned over to the federal authorities this year as part of the federal court settlement. In this settlement, the bank agreed to provide financial data for clients whose accounts showed signs of tax evasion.
Since Mr. McCarthy agreed to plead gulity at his Sept. 14 hearing, he faces a maximum sentence of five years in prison and $250,000 in fines. He is still be liable for back taxes and penalties due on the unreported income.
With that being said, I think this is as good a time as any for other tax evaders to come clean using the IRS’ voluntary disclosure program.
Let’s take a look at the basic details surrounding this voluntary disclosure program. It essentially allows US taxpayers who are not currently under investigation (let’s face it, you can’t be under investigation and then decide to voluntarily disclose your offshore income) and have not reported taxable income in the past to come forward to avoid criminal prosecution and severe penalties. The tax liability relating to unreported offshore income that is voluntarily disclosed will be settled as follows:
- Taxes and interest due for the prior six years (2003 through 2008) will be assessed. The taxpayer must file or amend all returns and Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). I realize at this point, if you’re aware of the statute of limitations when it comes to tax matters, you may be asking yourself, just how can the IRS assess taxes and interest for a six-year period, isn’t there a three-year statute of limitations? Simple; it’s one of the resolutions offered by the IRS in resolving the offshore voluntary disclosures. Also, if the IRS can prove fraud, then there is no statue of limitations. Oh joy!
- The IRS will assess an accuracy or delinquent penalty for all affected years.
- The IRS will assess a penalty equal to 20 percent of the amount in a foreign bank account or asset value. Under certain circumstances, the penalty can be reduced to five percent.
Apparently, some taxpayers have been doing what the IRS refers to as “quiet disclosures.” They are filing amended returns, reporting the previously unreported offshore income and are paying the related tax and interest on this income all while avoiding penalties. Of course, the IRS warns against this and also states that if the return is selected for examination, the 20 percent penalty offer would not be available. It should also be said that the IRS has identified and will continue to identify amended returns that have been filed with increased income.
Sept 23, 2009 is the last day the program’s settlement offer will be in effect. Taxpayers have until that date to enter into voluntary disclosure agreements. I’ve heard talks of the IRS possibly extending that deadline, but dare I say don’t count on it.
Please see here for a list of FAQs provided by the IRS.
