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What
the IRS Doesn't Tell You About their Tax Amnesty Program for Foreign
Accounts
|
by Vernon K. Jacobs
1-25-2003
A lot of headlines are being generated by the recent IRS announcement
on January 14, 2003 of a tax amnesty for holders of foreign credit
cards (or other financial arrangements) who have failed to report
income from their foreign accounts.
Who was it who said, "The devil is in the details"?
Whoever is the source of that cliché, it certainly applies to
this tax amnesty program. Even the IRS eleven page Revenue Procedure
(2003-11) produces as many questions as answers.
First of all, the IRS has only given taxpayers and their tax preparers
until April 15, 2003 to file an application to participate in this
program. There is no indication that the application can be made with
an extended tax return.
However, a careful study of the program details indicates a need for
some serious deliberation before jumping on the bandwagon. The program
is not a win-win opportunity for all taxpayers who have used offshore
payment cards to evade US taxes.
Application to participate in the program does not preclude the IRS
from denying a taxpayer the benefits of the program and of pursuing
criminal charges and penalties. Essentially, a taxpayer who
participates in the program is providing the IRS with full and
complete details of a criminal activity which the IRS can then use to
pursue criminal charges. They probably won't -- but they could.
For that reason, a taxpayer who has any unreported income from foreign
accounts should NOT contact a tax preparer or an accountant to discuss
the matter. Such taxpayers should contact a criminal tax defense
attorney first. If a tax preparer is contacted by a taxpayer who
inquires about this program, the preparer should refer the taxpayer to
a lawyer before obtaining any details about the unreported income.
Second, the amnesty program provides that the taxpayer only needs to
compute any unpaid taxes for tax years from 1999 through 2001.
However, the IRS is not precluded from also examining earlier years if
those years are not closed by the statute of limitations.
Generally, an income omission of more than 25% of the gross income
reported on a return will extend the statute from three years to six
years. There is no statute of limitations for a false or fraudulent
return filed with the intent to evade tax or in the case of a return
that was not filed. Although a criminal prosecution must commence
within three years of the commission of the crime, there are a variety
of exceptions in which the time period is six years.
Third, many (perhaps most) taxpayers with offshore payment accounts and
bank accounts are likely to have foreign mutual funds, offshore
trusts, corporations, IBCs or partnerships. Returns for these entities
for multiple years will be required as part of the amnesty program. it
will be difficult for taxpayers with unreported foreign source income
to locate qualified tax lawyers and tax preparers who are familiar
with the complex filing requirements for foreign entities. If there
really are 1 million US citizens with foreign payment cards, and if
even half of them decide to come forward, the limited number of
qualified tax professionals and defense lawyers will be unable to
handle that much work.
Additional details, information and useful web site links about the IRS
Voluntary Compliance Program for unreported foreign source income will
be available on the Offshore Press, Inc. web site at
www.offshorepress.com/amnesty.htm As soon as possible, the web
site will include links for tax lawyers with experience in tax defense
litigation and tax preparers with some experience in preparing returns
for foreign mutual funds, foreign corporations, foreign partnerships
and foreign trusts.
Readers are invited to forward this information to any individuals or
email lists that may have an interest in the subject. Permission is
granted to any form of media to reprint this memorandum, if it is
reprinted as is.
(C) Vernon K. Jacobs
All rights reserved.
Vernon Jacobs is a CPA who concentrates on tax consulting and
preparation for U.S. persons with foreign source income and foreign
persons with U.S. source income. His professional web site is www.offshorepress.com/vkjcpa/index.htm
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