EDGE Magazine | Q3 2011
In the last issue of Edge published in the 2nd
Quarter of
2011, I wrote an article titled, "Will Taxpayers Ante up to Participate in Round Two? The IRS Offers a New Voluntary Disclosure Program." In this article I will briefly review the terms of the voluntary disclosure program, discuss certain changes to the program that have been announced subsequent to the prior article as well as summarize recent Congressional, Department of Justice ("DOJ") and IRS activity which may impact the number of noncompliant taxpayers seeking to participate in the program.1
2011 Voluntary Disclosure Program.
On February 8, 2011, IRS Commissioner Shulman announced the creation of a voluntary disclosure program for taxpayers with unreported foreign income ("2011 VDP"). The 2011 VDP was scheduled to terminate on August 31, 2011, and is the second such program, as on March 23, 2009 the initial voluntary disclosure program was announced. The parameters of the 2011 VDP are gleaned from a series of frequently asked questions and answers (FAQs) that the IRS posted on its website at
http://www.irs.gov/businesses/international/article/0,,id=2 35699,
00.html.
In short, the 2011 VDP requires taxpayers to cure any foreign-based noncompliance that exists during tax years 2003-2010. Besides filing complete and accurate amended tax returns (or original returns, if applicable), taxpayers must pay the following amounts to the IRS: (i) the tax deficiency, (ii) interest on the deficiency, (iii) a 20% accuracy-related penalty on the deficiency (or the delinquency penalties if original returns were not previously filed), and (iv) an offshore penalty for the years in question equal to 5%, 12.5% or 25% of the year with the highest aggregate balance held within the foreign accounts as well as (i) the value of any previously unreported income producing assets and (ii) the value of assets purchased with previously unreported income.
Recent Guidance Applicable to 2011 VDP
1 For reference purposes, readers may wish to review a copy of the prior article at
voluntary disclosure program in greater detail. 6 , which discusses the 2011
On June 2, 2011, the IRS introduced new guidance applicable to the 2011 VDP. While a complete summary of the guidance is beyond the scope of this article, two specific provisions will be discussed. For taxpayers who were concerned that they would not be able to obtain the documentation necessary in order to complete their submission by August 31, 2011, the IRS added FAQ #25.1 indicating that a 90--day extension may be available. "Requests for up to a 90 day extension must include a statement of those items that are missing, the reasons why they are not included, and the steps taken to secure them." Additionally, the taxpayer must "demonstrate a good faith attempt to fully comply with (the terms of the 2011 VDP) on or before August 31, 2011. The good faith attempt to fully comply must
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