Swiss bank account? Better report it now.
The IRS is offering partial amnesty for Americans who report previously undisclosed Swiss bank or other foreign bank accounts.
The IRS has made an offer to Americans with unreported offshore accounts: Turn yourself in, and you won’t face possible time in jail or fines as high as usual. The partial amnesty program started in February, and the offer extends to Aug. 31, 2011.
Normally, if somebody volunteers to come forward with an undisclosed account, the penalty will be less severe than if they’re nabbed. This program makes that penalty even lighter, though IRS Commissioner Doug Shulman says it's "a steep price."
The IRS made a similar “last chance” offer two years ago, but they say this time really is the final chance to come clean for such a mild penalty. The 2009 program had lower fines than this year’s: 15,000 Americans reported previously undisclosed foreign accounts.
Will such an offer work again?
First, people are more nervous about getting caught, he says. In 2009, shortly before the program’s deadline, the US government obtained the names of 4,450 Americans with unreported accounts at the Swiss bank UBS, that at one point held a total of $18 billion. The people who were caught before they came forward had to pay fines and back taxes, and in some cases, faced prosecution and jail time.
The UBS incident brought attention to the consequences of having a secret offshore account, and since then, Mr. Miller says he’s noticed that people have taken their obligation to report foreign accounts more seriously.
The 2011 program may also appeal to people who would have come forward in 2009, but didn’t get their paperwork finished in time. In 2009, the deadline was extended by about a month, but a spokesperson from the IRS insisted that the Aug. 31 deadline this year is final.
It’s perfectly legal for Americans to keep offshore accounts. But any American who keeps more than $10,000 in offshore accounts must report the money to the IRS by filling out a Report of Foreign Bank and Financial Accounts, or FBAR.
The advantages of turning oneself in? Individuals won’t face criminal prosecution and will know with some certainty what their penalty will be: paying back taxes and interest for up to eight years plus a fee of 25 percent of the highest balance in the account if the balance was $75,000 or more, or a fee of 12.5 percent if the balance was below that threshold.
However, some people will continue to take their chances, says Miller, who works with clients who have such accounts. Some have reported them, others have not.
For instance, people who have watched the balance in their account plummet may still be slapped with the 25 percent fee and have no funds left to pay it.
“The cost of coming clean would be more than they could handle financially,” he says.