IRS Announced Reopening of Tax Amnesty Program For Undisclosed Foreign Financial Accounts

Posted on January 16, 2012 by Marco Rossi

On January 9, 2011 the Internal Revenue Service reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs.

The IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion.  This program will be open for an indefinite period until otherwise announced.

“Our focus on offshore tax evasion continues to produce strong, substantial results for the nation’s taxpayers,” said IRS Commissioner Doug Shulman. “We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation’s tax system.”

The program is similar to the 2011 program in many ways, but with a few key differences. Unlike last year, there is no set deadline for people to apply.  However, the terms of the program could change at any time going forward.  For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.

“As we’ve said all along, people need to come in and get right with us before we find you,” Shulman said. “We are following more leads and the risk for people who do not come in continues to increase.”



 

The third offshore effort comes as Shulman also announced today the IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program, reflecting closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from up front payments required under the 2011 program.  That number will grow as the IRS processes the 2011 cases.

In all, the IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed last September, hundreds of taxpayers have come forward to make voluntary disclosures.  Those who have come in since the 2011 program closed last year will be able to be treated under the provisions of the new OVDP program.

The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category.

For the new program, the penalty framework requires individuals to pay a penalty of 27.5 percent 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. That is up from 25 percent in the 2011 program. Some taxpayers will be eligible for 5 or 12.5 percent penalties; these remain the same in the new program as in 2011.

Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

Participants face a 27.5 percent penalty, but taxpayers in limited situations can qualify for a 5 percent penalty. Smaller offshore accounts will face a 12.5 percent penalty. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVDP will qualify for this lower rate. As under the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.

The IRS recognizes that its success in offshore enforcement and in the disclosure programs has raised awareness related to tax filing obligations.  This includes awareness by dual citizens and others who may be delinquent in filing, but owe no U.S. tax.  The IRS is currently developing procedures by which these taxpayers may come into compliance with U.S. tax law. The IRS is also committed to educating all taxpayers so that they understand their U.S. tax responsibilities.

More details will be available within the next month on IRS.gov. In addition, the IRS will be updating key Frequently Asked Questions and providing additional specifics on the offshore program.
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Italy Extends Statute of Limitation for Foreign investments and CFCs

Posted on December 23, 2009 by Marco Rossi

Italian parliament passed a new law which extends the statute of limitation for assessment of taxes due on income arising from foreign investments and controlled foreign companies.

The general statute of limitation period is five years from the year in which the return is filed. The special statute of limitation for income from foreign assets and controlled foreign companies is extended to nine years.

The new measure is part of the package of measures which includes and extension of deadlines for the tax amnesty and voluntary disclosure of undeclared foreign assets to February 28, 2010 (with tax of six percent) and April 30, 2010 (with the tax increased to seven percent).

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Italy Extends Deadline for Voluntary Compliance Program

Posted on December 18, 2009 by Marco Rossi

On December 17, 2009 the Italian Government passed a decree which extends the deadlines for the Italian voluntary disclosure program.

The new deadlines are February 28, 2010 and April 30, 2010. Taxpayers who repatriate or regularize their undeclared foreign assets within February 28, 2010 pay a 6 percent flat tax on the fair market value of the repatriated or regularized assets. Taxpayers who repatriate or regularize their undeclared foreign assets within March 31, 2010 pay a flat 7 percent tax.

According to the latest statistics, foreign assets in excess of E 100 billion have been declared pursuant to the current voluntary disclosure program enacted in September this year.

In connection with the unreported foreign assets disclosure program, new penalties have been enacted for failure to report foreign investments. The new penalties are equal to minimum of 200 to a maximum of 400 percent of the unpaid tax on unreported foreign investments and 50 percent of the fair market value of the unreported foreign assets.

Also, any foreign asset which has not be reported is deemed to be unreported income subject to tax.

 

 

 

 

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Italy Cracks Down on Tax Havens

Posted on November 13, 2009 by Marco Rossi

In connection with the enactment of its own tax amnesty (which permits the repatriation or regularization of undeclared foreign investments with the payment of a very generous 5% flat tax on the fair market value of the undeclared assets), Italy is cracking down on tax havens, especially those across the border such as Switzerland, Liechtenstein and San Marino. Current estimates of the Italian tax administration suggest that more than 35 percent of Italian investments in Switzerland are being repatriated under the amnesty, and more are expected to come and sit permanently in Italy after the repatriation procedure (for which the deadline is set at December 15).

Recently, it has been reported that Italian tax agents under cover visited several Swiss banks taking pictures of clients coming in and out the banks, and have increased the controls at the border for Italians moving in and out of Switzerland.

As a result of Italy's strong action, Switzerland is now working on a revised proposal to the EU for the enactment of a new back withholding in exchange for Swiss banks customers privacy. Under the new proposal, Switzerland would negotiate with each EU member state a new back up withholding tax, that could be as high as 30 percent and would apply on savings from Swiss accounts of residents of other EU Member States. The proceeds from the withholding tax would go to the resident state of the Swiss bank account holder. In exchange for the back-up withholding, Swiss banks would not be forced to give up the bank secrecy and reveal the names of their customers.

Italy's reaction to the proposal has been rather skeptical so far. The approach of the Italian government is that first the tax amnesty procedure is completed, and then the due consideration will be given to any possible solution to the problem of those Italian individual investors who have decided to keep their undeclared funds offshore. A new provision in the Italian tax code now presumes that any money kept offshore comes from undeclared income for which Italian taxes are due, and the penalty has been increased to up to 400 percent of the amount of unpaid taxes.

Liechtenstein, on the other side, is negotiating a new exchange of tax information treaty with Italy, after several other similar treaties have been signed with a number of other EU Member States.  

 

 

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New Tax Amnesty Takes Effect on September 15

Posted on September 16, 2009 by Marco Rossi

The new tax amnesty recently enacted by the Italian parliament took effect on Sept. 15. Taxpayers have time until April 15, 2010 to apply.

The amnesty applies to individuals and pass through entities which held undeclared foreign accounts and investments outside of Italy as of December 31, 2008.

Taxpayers can declare (and leave abroad) or repatriate the foreign accounts and investments and avoid any applicable tax and civil penalties by paying a tax at a flat rate of 5% on the amount of the reported foreign accounts or investments.

To apply for the amnesty, taxpayers shall file a form with a bank or other Italian qualified financial intermediary, on which they will report the assets that they want to declare or repatriate. The bank or financial intermediary, in turn, will file the form with the payment of the tax with the tax administration. The form does not contain any personal information on the filing taxpayer. Therefore, the amnesty is completely anonymous. 

Any future audits on the amounts that are reported on the form is not allowed and administrative penalties for the violation of the rules on reporting cross-border transfer of assets and foreign investments are permanently forgiven.   

Similar amnesties enacted in 2001 and 2003 generated a repatriation of 59.8 and 14.9 billion euros, with a tax revenue of 1,4 and 0.6 billion euro (at 2.5 and 4% tax rate), with 56 and 51% of the declared money coming from Switzerland. The estimated amount of declared or repatriated foreign assets that is expected from the new amnesty is 60-90 billion euro with a tax revenue of 3-45 billion euros.           

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Italian Government Is Preparing a New Tax Amnesty

Posted on April 9, 2009 by Marco Rossi

The Italian government is working at a bill which would enact a new tax amnesty. The bill should be introduced to the Parliament as early as next week.

Based on certain anticipations on the contents of the new bill, undeclared foreign earnings that are reported and repatriated would be subject to 10% flat tax. Unreported foreign earnings that are reported but reinvested or kept abroad would be subject to a higher tax. In either case, the tax would apply in lieu of any other taxes due on the undeclared earnings and would definitely settle the taxpayer's position.

A similar amnesty was enacted in 2001-2022, together with tougher rules on failure to report foreign bank accounts and other foreign investments that can generate foreign income taxable in Italy. That tax amnesty had a limited success and in general foreign earnings remained significantly unreported.

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