After Voluntary Disclosure Initiative Closes, IRS Moves On To Information Document Requests For Offshore Account Holders

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In the wake of the UBS AG fallout and the closing of its Offshore Voluntary Disclosure Initiative on October 15, 2009, the IRS continues to wage its attack on offshore tax evasion. One IRS tactic is to issue an Information Document Request – or IDR – to taxpayers suspected of having unreported foreign bank accounts requesting documents and materials related to the foreign accounts. DC tax attorney Kevin Thorn discusses the potential for more IDRs to be issued as the result of information received by the IRS from UBS and the significant participation in the Voluntary Disclosure Initiative.

Thorn Tax Law Group's Managing Partner Kevin Thorn

“It is hardly a coincidence that the taxpayers receiving these IDRs all have foreign accounts, many of which are still undisclosed.”

In the wake of the UBS AG fallout and the closing of its Offshore Voluntary Disclosure Initiative on October 15, 2009, the IRS plans to continue to wage its attack on offshore tax evasion. It is clear that offshore tax evasion remains a top IRS enforcement priority. So what can U.S. taxpayers expect next? One IRS tactic is to issue an Information Document Request – or IDR – to taxpayers suspected of having unreported foreign bank accounts.

DC tax attorney Kevin Thorn of Thorn Law Group, PLLC says he has seen “a sharp increase in the number of IDRs requesting information specifically related to the taxpayer’s foreign bank accounts.” According to Thorn, this trend will likely continue for at least the next three to six months. Taxpayers may receive a Form 6564, Information Document Request, from the IRS to secure necessary books, papers, records, and other data relevant to the IRS examiner’s inquiry into the validity of a tax return. Among other information requested by the IDR, will be a request for materials and information related to the taxpayer’s foreign bank accounts.

Notes Thorn, “it is hardly a coincidence that the taxpayers receiving these IDRs all have foreign accounts, many of which are still undisclosed.” The IRS acknowledged it received voluminous information as a result of taxpayer participation in the Offshore Settlement Initiative. “No doubt the IRS is harvesting the information it received as a result of UBS prosecution as well as through the Offshore Settlement Initiative to identify account holders who have not yet come forward,” adds Thorn.

In 2009, the IRS and U.S. Department of Justice launched a highly publicized investigation into Swiss bank UBS AG and U.S. accountholders who failed to disclose their assets to the U.S. Government. However, the investigation did not end with UBS. According to the Department of Justice, the government is looking at information sharing agreements with other banks around the world, similar to the agreement it entered into with UBS. Also, IRS information-gathering efforts were bolstered by the response to its recently-closed settlement initiative which encouraged taxpayers to come forward and make a voluntary disclose of their foreign assets at UBS and other offshore banks in exchange for reduced penalties.

The Information Document Request is a formal and structured process for the IRS to request and secure information from taxpayers, including information regarding offshore bank accounts. Although less formal than a subpoena, the IDR carries with it consequences for failure to cooperate and can lead to further inquiry and potential sanction. IDRs are frequently issued as part of an IRS audit.

The IRS will focus Information Document Requests on U.S. taxpayers with offshore assets and accounts that failed to disclose these interests to the U.S. government on their Form 1040, U.S. Individual Tax Returns, and file a corresponding Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). If IRS agents discover that a taxpayer has not reported an interest in an offshore account or income accruing on such accounts during the course of an audit, the IRS may impose steep penalties—including the greater of $100,000 or 50% of the offshore account balance for willful failure to file an FBAR for each account. These penalties, compounded with interest and fraud penalties, can essentially wipe out the taxpayer’s foreign assets. Additionally, taxpayers could be subject to criminal prosecution and jail time for tax evasion.

Thorn advises that, although the deadline to participate in the Offshore Settlement Initiative has passed, U.S. taxpayers with undisclosed offshore accounts can still make a voluntary disclosure. Says Thorn, “the penalties may be higher now [than those paid by Initiative participants], but it is always better to disclose to the IRS yourself than to have the IRS approach you after finding out about your offshore accounts from someone else.”

For additional information on the news that is the subject of this release, contact Kevin E. Thorn or visit http://www.thorntaxlaw.com.

About Thorn Law Group, PLLC:
Thorn Law Group, PLLC is a law firm dedicated to helping clients resolve complicated international tax and financial problems.

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Mary Beth Rinaldi
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