By Arden Dale
Stashing money in a foreign bank account away from the prying eyes of the Internal Revenue Service may sound pretty exotic – but tax advisers say a lot of people do it. And many of them sat on the sidelines as thousands of their counterparts came forward on their own after the threat that they’d otherwise be exposed during the UBS AG (UBS) tax evasion scandal of 2009. (It’s perfectly legal to have an overseas account, but illegal not to report what’s in it.)
Now, these folks will have a second chance to make things right with the tax authority. The IRS is expected to announce in coming weeks a second amnesty deal like an earlier one that offered lower penalties to those who turned themselves in. The pressure to come in from the cold gets worse as the threat of whistleblowers grows. Take the recent case of Rudolf Elmer, a Swiss banker who gave details of rich tax cheats to Wikileaks.
“Tax practitioners and taxpayers across the country are eagerly awaiting the IRS’ announcement of a new voluntary disclosure program,” says Bryan C. Skarlatos, a partner at New York law firm Kostelanetz & Fink, LLP.
Scott Michel, a partner at Caplin & Drysdale in Washington, D.C., is among those who think a new program will come soon, possibly “any day now.”
Besides drawing in new account holders, a second deal would be a boon for those who came clean after the first amnesty program expired on Oct. 15, 2009. Many of their cases are languishing at the agency. Standard penalties on the books as part of the agency’s decades-old voluntary-disclosure program are likely to be much higher than those that would be applied to them under a new deal. Advisers hope that any new, lower penalties offered as part of a second deal, would apply.
Tax advisers trying to help the people who stepped forward are frustrated. The account is often a family legacy, inherited from a relative who banked in Switzerland not to evade American taxes, but to escape the Nazis. Many of the cases are hellish, involving anxious, foreign-born account holders. Tax attorneys say the IRS seems to be shifting cases from agent to agent with no particular rhyme or reason, One agent may ask for certain paperwork while another asks for a different set. The IRS didn’t respond to calls for comment.
IRS head Doug Shulman broached the idea of a second deal last November, when the IRS dropped its legal action against the Swiss banking giant UBS. He mentioned it again during a speech last month.
Barbara T. Kaplan, a shareholder at Greenberg Traurig LLP in New York, has said that there are taxpayers out there who “would come in if they had some idea of what it would cost them.”
Current IRS rules allow for a much higher maximum penalty: 50% per year of the highest balance of the account for each year in question. Advisers are hoping for a penalty of 25% of the highest balance in the last six years the account was open, but are bracing for the possibility of 30% or even higher. The special deal in 2009 allowed for a one-time penalty that was 20% of the highest balance for the past six years.
“The numbers are going to mean a lot to people,” says Skarlatos.
Nearly 15,000 U.S. taxpayers took advantage of the first voluntary-disclosure program, which ended last year. People stepped forward after U.S. tax authorities reached two landmark settlements with UBS. But many still have fortunes stashed away in foreign bank accounts.