Amnesty for Offshore Tax Evasion

he IRS’s offshore voluntary compliance initiative is a one-time amnesty program applicable generally to taxpayers who underreported their 1999, 2000, 2001 and/or 2002 taxable income using payment cards (debit, credit and charge cards) issued by foreign banks and/or offshore financial foreign entities (foreign trusts, corporations, partnerships and financial institutions). Amnesty also may be available for tax years ended before 1999. CPAs should review revenue procedure 2003-11 and news release IR 2003-5 to determine whether their clients can benefit.

GAccording to the IRS, eligible taxpayers who apply by April 15, 2003, may be able to avoid criminal prosecution and some civil penalties. Filing an amnesty request will not bar the IRS from imposing IRC section 6651 late-payment penalties and section 6662 accuracy-related penalties or from auditing a taxpayer’s related return and/or proposing changes.

WHY OFFER AMNESTY?
The IRS, which has been studying offshore credit card accounts since October 2000, seeks to gather information from amnesty applicants to help it pursue individuals who have promoted such accounts as a way to conceal assets and evade U.S. income taxes.

The credit cards can provide U.S. taxpayers easy access to offshore funds and accounts in bank-secrecy or tax-haven countries that allow income to be hidden from U.S. authorities.

The service currently is investigating several thousand of these accounts. Its Criminal Investigation Division, however, lacks the financial and human resources to pursue all of them.

According to the IRS, holding an offshore credit card is not illegal if there is a legitimate need, but U.S. citizens still are required to pay federal income tax on their worldwide income. The abuse stems from citizens’ using these cards solely to evade taxes.

Example. A corporate executive deposits gambling winnings in an offshore account titled in her company’s name. She then spends these funds throughout the world via an internationally accepted debit card drawn on the account. The IRS cannot trace the origin.

ELIGIBILITY
The initiative permits eligible taxpayers to file or amend their returns and pay back taxes and interest. The amount and type of penalties assessed will be based on several factors, including the number of years involved, the tax underpayment and whether a return was inaccurate or filed.

Taxpayers may participate in the amnesty program if they file a request in writing or by e-mail by April 15, 2003; see revenue procedure 2003-11 for details. The IRS will not grant extensions for the initial filing. A practitioner may submit a request on a client’s behalf by using a properly executed power of attorney. Taxpayers who demonstrate to the IRS that they cannot pay all the tax liabilities can request other payment arrangements. There are several other criteria for program eligibility. Amnesty is not guaranteed until the taxpayer signs a closing agreement with the IRS.

CONTACT INFORMATION
Interested practitioners can call 215-516-3537 or e-mail VCI@irs.gov . For more information, see the Tax Practice & Procedures column, edited by Mark Ely, in the April 2003 issue of The Tax Adviser.

—Lesli Laffie, editor
The Tax Adviser