Thursday, March 26, 2009

IRS to Offer Deal to Tax Evaders

From The New York Times:

The Internal Revenue Service, under pressure to bring in money to the faltering economy, plans to give offshore tax evaders a big break.

The agency has drafted a plan that significantly lowers a penalty that applies to wealthy Americans who hide money overseas in secret accounts, a person briefed on the matter said Thursday. The plan is intended to lure out of hiding scores of wealthy people who must come forward and declare their accounts in order to take advantage of the lower penalty.

The plan was developed amid a widening investigation into wealthy American clients of UBS but will apply to clients of other banks as well.

Under the plan, according to the person briefed on the issue, the IRS will cut an onerous penalty for not filing a Report of Foreign Bank and Financial Account, known as an FBAR — something offshore tax evaders have not done.

The current penalty is 50 percent of the high balance of each account over the last three years — an amount that can wipe out an investor’s accounts in just two years — but the I.R.S. will reduce that penalty to 5 percent to 20 percent, depending in part on whether the wealth was inherited.

The I.R.S. will also require taxpayers to pay any taxes and interest owed over the last six years, as well as assess a standard, accuracy-related penalty of 20 percent. Taxpayers must also file amended returns for the last six years.

The proposal, which the IRS is communicating to its field agents who audit returns, does not allow taxpayers to escape potential prosecution, but it makes that outcome less likely, in particular for those covered under the 5 percent FBAR penalty, this person said.

“They need to get money back into the system, so they needed to sweeten the deal,” the person said.

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