I just read an article in the New York Times that the Internal Revenue Service has drafted a plan that will drastically lower the penalty for hiding money in offshore accounts. Currently, taxpayers who have more than $10,000 in these accounts are required to file a Report of Foreign Bank and Financial Account (FBAR).
Many wealthy Americans have failed to file their reports and are currently subject to a penalty of as much as 50% of the high balance in the account over the last three years. If the individual failed for file for several years, this could easily wipe out someone’s entire account. If enacted, the new draft proposal will reduce this penalty to between 5% and 20% depending on a number of factors – in particular, whether or not the money was inherited.
Both the IRS and the Justice Department have been exerting pressure on UBS, the world’s largest private bank to release the names of some 52,000 Americans who have such accounts with the bank. The IRS draft will allow these individuals to come forward prior to their names being released and avoid the penalties.
In my opinion, the reasons that the IRS is doing this seem to contradict themselves. The big reason is that they are trying to find money, and having these taxpayers come forward will create an influx of cash for them. On the contrary, wouldn’t the IRS receive more cash if they just waited for the names to be released and then went after them for the full penalty? It makes you wonder what the likelihood is that they will actually get these names and what they will actually be able to do with them once they get them.
You can read the NY Times article here: I.R.S. to Offer Deal to Tax Evaders
You can learn more about the Report of Foreign Bank and Financial Account (FBAR) here.