The voluntary disclosure program has been around since the 1950's. For many years, very few people knew about it and even fewer took advantage of it. William D. Hartsock began working with clients to take advantage of the IRS voluntary disclosure program in the mid 1980's.
Then in 2009, the IRS offered a special voluntary disclosure program and then in 2011 the IRS offered the "offshore voluntary disclosure initiative" and now they are offering the 2012 voluntary disclosure program. The 2009 and 2011 IRS voluntary disclosure programs have expired and so too have the special privileges that went along with them. However, the 2012 IRS voluntary disclosure program is still available today.
The IRS determined that there are so many US persons who had interest in bank accounts and property offshore, that they simply could not police it all. So, in order to separate the typical individual who just didn't know about the filing requirements from those people that really are engaged in illegal activities, they initiated the voluntary disclosure programs in order to help bring law abiding citizens back into the system. It was a lot easier for the IRS to give what they thought was a discount or some leniency on penalties and to come back into the system, rather than using up what little resources the IRS had and pursue the millions of individuals who are outside the system.
The Swiss Voluntary Disclosure Program
On August 29, 2013 the US Department of Justice reached an agreement with the government of Switzerland to allow the US DOJ to criminally prosecute Swiss citizens in connection with soliciting, managing or otherwise being involved with unreported bank accounts associated with US citizens. This initiative was agreed upon in an effort to encourage Swiss banks to hand over all records associated with these accounts including all accounts where money was transferred from and to, and all information of persons with an associated interest in the account.
The US DOJ is also offering a Swiss Voluntary Disclosure program to allow Swiss banks and Swiss bank employees the ability to turn over all documentation associated with the accounts in question and fully cooperate with ongoing investigations into the owners of those accounts.
What this voluntary disclosure program means to any US citizen with unreported income or assets associated with a Swiss bank account, is that the US DOJ and IRS will certainly attain all of that information on their own, which will trigger a criminal prosecution if the US citizen has not yet entered the US voluntary disclosure program. That should make entering the voluntary disclosure a program for any US citizen with a foreign bank account.
Penalties For Failure To Report IRS Foreign Income
The number one problem with failing to comply with the filing requirements, that can technically be a crime incurring criminal prosecution as well as have a civil penalty incurred. Answering "no" to the bottom of Schedule B, which asks if you have interest in or signature authority over a foreign bank account, while knowing that you do have a bank account in a foreign country, is a crime for making a false statement under the internal revenue code. There are ways, such as the voluntary disclosure program, to reduce that from a potential tax crime to nothing more than a civil penalty, but you do have to act fairly soon. You have to contact the IRS before they contact you, otherwise the IRS will go after you criminally and that absolutely means jail time according to the federal sentencing guidelines.
If the IRS can treat it like a civil case wherein perhaps you tried to comply, but were not familiar with the rules and regulations then there are going to be monetary penalties. Now, then penalties are going to be severe. Failure to file an FBAR can be up to a maximum of 50% in the account per year.
These penalties were originally intended to go after the worst of the worst offenders and they may be reduced down depending upon how well you present your case, how well you have documented everything, whether you contacted the IRS before the IRS contacts you, etc... there are many different rules and regulations on that. There are mitigation rules under the internal revenue code that provide a reduction of penalties based on the facts and circumstances of the case, and you just have to know what those mitigation rules are.
Benefits Of The Offshore Voluntary Disclosure Program
The biggest benefit of the offshore voluntary disclosure program is that the IRS won't go after you criminally if you contact them first to offer a full disclosure and cooperate with them. Even if you get into the program and then opt-out because the penalties are too high, the IRS is not likely to pursue you criminally because you made an effort to begin with by entering the voluntary disclosure program. While the voluntary disclosure program will not reduce the assessment of financial penalties, however it will eliminate the jail time.
Reporting Requirements For Off Shore Bank Accounts
There are numerous reporting requirements for offshore bank accounts if you are a US citizen, a resident alien or someone that complies with the substantial presence test, then you must file the FBAR (IRS form TD F 90-22.1). The FBAR is an information return, it is not a tax return. Therefore the form itself will not cause you to owe any taxes. However, penalties for failing to file the FBAR are severe.
Working With An International Tax Lawyer
The rules and regulations involved with the voluntary disclosure program are far too complicated to attempt to figure them out yourself. It takes years or experience, work and effort to learn the rules and regulations here in the United States as well as what their relationship is to rules and regulations in other countries where there is other treaties, etc.
If you have any interest in, or signatory authority over foreign bank accounts it is highly recommended that you work with a tax attorney to ensure that you are in full compliance with the foreign bank account reporting requirements and that you voluntarily disclose any past discrepancies before the IRS contacts you.