IRS: Tax evaders can avoid jail if they come clean

By Kevin McCoy, USA TODAY
Updated 48m ago |

Americans who have hidden assets in offshore accounts to evade federal taxes received a second IRS offer Tuesday to come clean in exchange for leniency.

Hoping to repeat the success of a 2009 voluntary disclosure program that has raised nearly $400 million and counting in new tax revenue, the IRS announced a less-generous offer set to run through Aug. 31.

Like the 15,000 offshore account owners who came forward under the first program, those seeking leniency won't get IRS approval if federal investigators have already started probing the applicants' accounts.

"As we continue to amass more information and pursue more people internationally, the risk to individuals hiding assets offshore is clearly increasing," IRS Commissioner Douglas Shulman said in a Tuesday phone conference with reporters. "This new effort … gives those hiding money in foreign accounts a tough, fair way to resolve their tax problems once and for all."

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Shulman stressed that the new leniency offer deliberately includes less attractive sweeteners to avoid handing a reward to tax evaders who didn't come forward sooner. But, like the earlier program, those approved won't face criminal prosecution. On the civil side, terms of the new voluntary disclosure program include:

• A 25% penalty on the amount in the offshore accounts in the year from 2003 to 2010 with the highest aggregate balance. That's up from 20% under the earlier program, which also covered only a six-year period. Participants must also pay back-taxes and interest for up to eight years, plus accuracy and delinquency penalties.

• A lower, 12.5% penalty for those whose previously secret accounts did not hold more than $75,000 for any year from 2003 to 2010. And an even lower 5% penalty limited to special circumstances, such as those who inherited offshore accounts and had little involvement with them.

• All original and amended tax returns and payments must be filed by the Aug. 31 deadline.

Additionally, the IRS said that roughly 3,000 account holders who have come forward under the agency's regular, ongoing disclosure program since the first leniency offer expired in October 2009 will be eligible for the newly-announced terms.

Shulman said the IRS reversed its previous warnings that the earlier leniency program was a one-time-only offer because many owners of offshore accounts sought a reprise.

Perhaps increasing the clamor, the IRS has eagerly publicized federal criminal prosecutions of more than a dozen Americans who evaded millions of dollars in taxes by hiding assets in offshore accounts with Swiss banking giant UBS.

The bank in 2009 reached a $780 million settlement of criminal charges that it had secretly helped U.S. clients evade taxes. UBS also agreed to turn over account information for 4,450 of those clients once any appeals to the Swiss justice system were completed.

Since the UBS agreement, the IRS and Department of Justice has pursued allegations, whistle-blower tips and evidence about similar tax evasion by Americans and others using secret overseas accounts in additional banks. On Friday, Mauricio Cohen and his son, Leon Cohen Levy, were each sentenced to 10-year federal prison terms for convictions on charges they failed to report more than $49 million in income hidden by shell companies and offshore tax havens.

The Miami-based property developers were clients of HSBC Holdings, Europe's largest bank. Shulman said some IRS and Department of Justice investigations of additional foreign banks are "quite advanced." However, he pointedly declined to discuss the possibility of targeting HSBC Holdings with a legal effort like the one mounted against UBS.

Shulman, however, said the investigations and the new leniency effort share a common theme: "My goal in all of this is, long term, to get people to stop hiding assets overseas, and those who have hidden assets overseas, to get them back into the U.S. tax system."

While several tax lawyers predicted the new leniency would attract many applicants, at least one questioned whether the IRS effort would have its intended effect. "The people they're really targeting are not coming in," said Martin Press, a Fort Lauderdale-based tax law expert who represented numerous clients under the first leniency program. "Current tax evaders are not coming in, because it's too costly, and they're risk-takers."

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