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The 2011 Offshore Voluntary Disclosure Initiative

Taxpayers who participate in the 2011 Offshore Voluntary Disclosure Initiative will be liable for the following:

  • Back taxes for years 2003 through 2009 (and 2010, where applicable);
  • An accuracy-related penalty or delinquency-related penalty for each of the years in question (generally up to 20 or 25 percent of the tax due for each year); 
  • Interest on the tax and penalty amounts; and
  • A penalty of 25 percent of the total asset value in all unreported foreign bank accounts and certain entities (calculated by reference to the year in which the value of such accounts and entities was the highest during the disclosure period). This penalty is ‘in lieu of' all other penalties that would otherwise apply. Certain taxpayers may qualify for a reduced ‘in lieu of' penalty, as detailed below.

The IRS has expanded the group of individuals who may qualify for a reduced penalty rate. Individuals with smaller offshore accounts (i.e., where the value of the unreported accounts or assets did not surpass $75,000 in any year during the period) may qualify for an ‘in lieu of' penalty of 12.5 percent.

Inherited accounts are eligible for a reduced ‘in lieu of' penalty of 5 percent where the taxpayer (i) did not open the account in question, (ii) exercised only minimal control over the account, (iii) has not withdrawn more than $1,000 from the account in any year in the disclosure period and (iv) can show that all applicable US taxes have been paid on funds deposited into the account. This is somewhat more favourable than the treatment of inherited accounts under the 2009 program.

Individuals classified as ‘accidental Americans' may qualify for a 5 percent ‘in lieu of' penalty if such persons were unaware that they had US citizenship, for instance because they were born in the US to non-US parents and were raised outside the US with no knowledge of their dual citizenship.

IRS Voluntary Disclosure