Foreign Bank Accounts: 2009 OVDI Results and “Quiet Disclosures”
The IRS began their recent Offshore Voluntary Disclosure Programs (OVDP) for non-reported foreign bank accounts in 2009. Since then, while the IRS has detected several hundred taxpayers who have “quietly disclosed” foreign accounts, the Government Accounting Office reports the number is more likely to exceed 10,000. In their report, Offshore Tax Evasion: IRS Has Collected Billions of Dollars, but May Be Missing Continued Evasion, the GAO provided result of its study of the 2009 OVDP (the IRS has held OVDPs in 2003, 2009 and 2011 and has an ongoing initiative which began in 2012).
Under an OVDP, taxpayers have been allowed to apply to the IRS, and if they qualify can disclose their foreign accounts, pay taxes, interest and tax-related penalties for open years. In exchange for waiver of criminal prosecution, the taxpayer paid a percentage of the maximum value in the foreign accounts over the program period (2009 was a 20% penalty, 2011 held a 25% penalty and the ongoing 2012 program holds a 27.5% penalty).
2009 Results: According to the GAO, 19,337 taxpayers participated in the 2009 initiative and 10,439 cases have been closed. The average offshore penalty assessed was about $376,000. Half of the participants had accounts in Switzerland. About half of the $4.1 billion in total revenue collected under the program (as of the end of 2012) was from a mere 378 cases. In all OVDI programs thus far, more than 39,000 disclosures have been made and more than $5.5 billion in revenue has been collected.
Quiet Disclosures: The GAO reviewed amended or late filed returns and Foreign Bank Account Reports (FBARs) filed for 2003-2008 (the years of the 2009 OVDP) and found 10,595 taxpayers who might have “disclosed quietly”. Of those, 3,386 made late or amended tax filings for multiple years and 94 filed for all six tax years.
New Reporting: The GAO report also estimated the number of taxpayers newly reporting existing foreign bank accounts by reviewing both Form 1040, Schedule B, Interest and Dividends, which has a question regarding foreign bank account as well as FBAR filings from 2003 through 2010. The number of taxpayers reporting a foreign bank account on Schedule B more than doubled to 515,635 between 2003 and 2010, from approximately 1% of all taxpayers to more than 2.5% of all taxpayers. Similarly, the number of FBARs filed tripled to 618,134, and more than doubled between 2009 and 2010!
The sharp increase in compliance during a global economic crisis but surrounded by increased publicity regarding the IRS Offshore Programs has led the GAO to question whether some of the taxpayers who have quietly disclosed or are newly reporting have attempted to circumvent the taxes, interest and penalties which would otherwise be owed. The IRS agreed with the GAO recommendations that it needs to more effectively detect and pursue quiet disclosures and previously unreported foreign accounts, as well as better educate taxpayers regarding compliance requirements.
