Yesterday, the Internal Revenue Service unveiled its latest statistics on participation in its Offshore Voluntary Disclosure Program (OVDP), an amnesty program for taxpayers with undisclosed foreign bank accounts that has existed in various forms since 2009.  To date, more than 50,000 taxpayers have made voluntary disclosures regarding offshore bank accounts, and the Treasury has collected more than $7 billion in additional taxes, interest, and penalties from OVDP participants.  These numbers confirm that the OVDP is far and away the most successful voluntary disclosure initiative ever offered by the IRS.  As a measure of the program’s success, the IRS announced that the OVDP would remain open indefinitely.

The IRS announced the latest OVDP milestones as part of its daily list of “Dirty Dozen” tax scams for the 2015 filing season. In an announcement entitled “Hiding Money or Income Offshore Among the ‘Dirty Dozen’ List of Tax Scams for the 2015 Filing Season,” the IRS stated thatavoiding taxes by hiding money or assets in unreported offshore accounts remains on its annual list of tax scams known as the ‘Dirty Dozen’ for the 2015 filing season.” “The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore,” said IRS Commissioner John Koskinen. “Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order.”

The IRS stated that is had conducted “thousands of offshore-related civil audits that have produced tens of millions of dollars.” In addition, the IRS and Justice Department have also pursued criminal charges leading to billions of dollars in criminal fines and restitution. (The Justice Department’s Tax Division Offshore Compliance Initiative maintains a “scorecard” of its successes here.) The announcement further stated:

The IRS remains committed to our priority efforts to stop offshore tax evasion wherever it occurs.  Even though the IRS has faced several years of budget reductions, the IRS continues to pursue cases in all parts of the world, regardless of whether the person hiding money overseas chooses a bank with no offices on U.S. soil.

Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities and then using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS further warned that it is obtaining a significant amount of information regarding offshore tax evasion from its enforcement efforts as well as the Foreign Account Tax Compliance Act (FATCA), which will require foreign financial institutions to start disclosing the identities of U.S. accountholders as early as March 2015 in some cases:

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice (DOJ) to prosecute tax evasion cases.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.

Since 2009, tens of thousands of individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore is increasingly more difficult.

In addition to OVDP, other voluntary compliance options exist for taxpayers with undisclosed foreign bank accounts or financial assets, such as the Streamlined Compliance Filing Procedures (details here). Please contact a member of Blank Rome’s Tax Controversy Team should you have any questions about OVDP, FATCA, or foreign asset reporting.

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