Banking & Financial Services

Commissioner Schulman cautions that “. . .
people need to come in and get right with us before we find you.”

This month the U.S. government announced its third offshore voluntary disclosure program (“2012 OVDP”). Under this 2012 OVDP, taxpayers who voluntarily come forward and report their previously undisclosed foreign accounts and income will be excused from criminal prosecution. The 2012 OVDP is similar to previous voluntary disclosure programs that ended in 2011 and in 2009 and accepted 33,000 taxpayers.

2012 OVDP

The new 2012 OVDP is similar to the prior programs, but requires individuals to pay a penalty of 27.5% of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure.  This penalty is slightly higher than the 25% penalty required in the 2011 program and the 20% penalty required in the 2009 program.  In the 2012 OVDP, some taxpayers will continue to be eligible for 5% and 12.5% penalties.  If, in each of the years covered by the 2012 OVDP, the largest aggregate account balance is less than $75,000, the penalty is reduced to 12.5% of the largest account balance. The penalty can be reduced to 5% in only very narrow cases, such as where the taxpayer inherited foreign accounts, withdrew no more than $1,000 from those inherited accounts, and did not direct the investment of those accounts.  In addition to paying the 27.5% penalty (or, if applicable, the 12.5% or 5% penalty), taxpayers participating in the 2012 OVDP must reveal all of their previously undisclosed foreign accounts and income. With respect to unreported income, they must submit original and amended returns for up to eight years, pay all income taxes and interest due on those amended returns (with income taxes on passive foreign investment company (PFIC) income optionally computed on a simplified basis), and pay accuracy and/or delinquency penalties on income tax due.

New Reports Designed to Catch People Who Hide Assets

The IRS will very soon have new enforcement tools with respect to accounts of U.S. taxpayers in foreign jurisdictions. In 2012, U.S. individual taxpayers who in 2011 held foreign financial assets above certain filing thresholds (as low as $50,000) must report these assets on 2011 Form 8938 attached to their 2011 Form 1040 filed in early 2012. Reportable financial assets include financial accounts in foreign countries; any interest in an entity formed in a foreign country; and any foreign financial instrument or contract held for investment.  This Form 8938 reporting requirement is in addition to the requirement that taxpayers file a “Report of Foreign Bank and Financial Accounts” (commonly referred to as an “FBAR” report) with the Treasury Department in 2012 to disclose their 2011 foreign accounts. There are significant penalties for failing to report.

Beginning in 2013, foreign financial institutions that hold U.S. securities portfolios must, as a practical matter, in order to avoid burdensome U.S. withholding on that portfolio, enter into a written agreement with the IRS. The agreement will require the foreign financial institution to perform due diligence to determine indirect or direct U.S. owners, and to report to those U.S. owners to the IRS.

Investigative Activity and Prosecutions

Recently, the Department of Justice (“DOJ”) has said that it is not stopping its prosecutions and will focus on banks, advisers and promoters from around the world.  The DOJ also welcomes the new legislation which will make it easier for the DOJ to find people with hidden accounts and assets.

The DOJ has recently successfully prosecuted individuals with undisclosed offshore accounts.  For example, in 2011, two South Florida real estate developers received 10 year prison terms for filing false tax returns. The IRS alleged the defendants used shell corporations in the Bahamas, the British Virgin Islands, Panama, Liechtenstein, and Switzerland to seek to conceal their assets and income from the IRS.

If you have any questions on the material in this newsletter, please contact:

Lu-Ann Dominguez
954.468.1393 •
Alan S. Lederman
954.713.6415 •

Read Gunster’s Boardroom Brief: Got undisclosed offshore accounts? IRS offers chance to make things right


Tax Advice Disclosure: To ensure compliance with requirements imposed by the IRS under Circular 230, we inform you that any U.S. federal tax advice contained in this communication (including any attachments), unless otherwise specifically stated, was not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any matters addressed.

This publication is for general information only.It is not legal advice, and legal counsel should be contacted before any action is taken which might be influenced by this publication.

Established in 1925, Gunster Yoakley is one of Florida’s oldest and largest full-service law firms.  Its substantial and diversified practice serves an extensive client base of international, national and local businesses, institutions, local governments and prominent individuals.  The firm maintains a strong presence in Florida with offices in Fort Lauderdale, Miami, Palm Beach, Stuart, Vero Beach, West Palm Beach, Jacksonville, Tallahassee, and Tampa. Gunster Yoakley is home to more than 180 attorneys and 329 employees, providing counsel to clients through 18 practice groups including corporate, immigration, employment, technology and emerging companies, tax, banking and financial services,  real estate, land use and environmental, business litigation, and private wealth services.

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