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New US tax amnesty regime directed at 'wilful' defaulters

Monday, 3 December, 2018

The US Internal Revenue Service (IRS) has issued guidance on the voluntary disclosure regime now in force, following the termination of its offshore predecessor on 28 September 2018.

The guidance applies to all voluntary disclosures, offshore or otherwise, received after that date, but is aimed principally at taxpayers with potential criminal exposure from their 'wilful or fraudulent' conduct. It gives them a chance to become compliant with the law and potentially avoid criminal prosecution, says the IRS's Deputy Commissioner for Services and Enforcement Kirsten Wielobob. It may also reduce their exposure to civil penalties.

The process starts with a taxpayer submitting a pre-clearance request, using a soon-to-be-amended Form 14457 currently used for offshore disclosures. The rules for determining taxpayer eligibility will not change.

Voluntary disclosures will go back up to six years, and the taxpayer will have to correct all non-compliance during the period. The IRS examiners will have discretion to expand the scope to include the full duration of the non-compliance, and may even refuse to grant discounts on the maximum civil penalties. These will be calculated as usual, based on the one tax year with the highest tax liability.

The disclosure opportunity includes the ability to clear up past foreign bank account reporting (FBAR) violations, although wilful FBAR penalties will be imposed according to the IRS' existing guidelines.

Other procedures are still available for those without criminal exposure, such as amended returns and the special 'streamlined' procedures for correcting offshore filings outside the Offshore Voluntary Disclosure Program (OVDP).

'Those without criminal exposure, or the need to mitigate the civil penalty costs for fraud-type conduct, should not make a voluntary disclosure under these procedures', comments tax enforcement expert Jack Townsend. 'In the case of offshore non-compliance, they can pursue the streamlined procedures, while in the case of other non-compliance they can file amended returns that (assuming no civil fraud) will be qualified amended returns requiring only the payment of tax and interest'.