AHLSTARZ Tax and Accounting Service -- Numbers, Simplified.

IRS Commissioner Douglas H. Shulman announced at a press conference on October 14 that 7,500 U.S. taxpayers have responded to the IRS's offshore voluntary compliance initiative. The initiative ends October 15 and will not be extended, the IRS has confirmed. The initiative was announced on March 23, 2009 (TAXDAY, 2009/03/27, I.3), and deadline has been extended once, from September 23 to October 15 (IR-2009-84; TAXDAY, 2009/09/22, I.1).

The initiative is aimed at taxpayers with foreign bank accounts who have not been reporting the income from the accounts or the assets in the accounts. Participants must agree to pay all back taxes for six years plus interest and penalties, plus an additional payment of 20 percent of the account's highest balance. By coming in voluntarily, taxpayers avoid the possibility of criminal prosecution, a 75-percent fraud penalty, and a potential liability of 50 percent of the account's highest balance.

Earlier press reports put the number of participants at 3,000 taxpayers. Shulman said there has been increasing interest in the initiative over the last month and that "a lot" of taxpayers have been coming in lately. "Applications are still coming in," Shulman noted. The IRS will give high priority to these applications and will be processing them over the next several months, he indicated. He could not say how many cases have been processed or when processing will be completed.

According to Shulman, it is too early to speculate on how much revenue the program will bring in, but he indicated that the size of the accounts ranged from $10,000 to over $100 million. He did say that there have been "an unprecedented number of disclosures" and that "big numbers are involved."

Participants have accounts in over 70 countries, distributed in every continent around the world, Shulman indicated. Some of the accountholders have multiple accounts or accounts in multiple countries. Many used trusts or corporations as nominees to hide ownership of their accounts.

"The initiative is part of a much broader effort...to crack down on offshore tax evasion," Shulman said. Some of the disclosures describe bankers who marketed the offshore accounts. The IRS plans to "scour" the 7,500 accounts to identify financial institutions and advisors involved in the accounts. However, Shulman said this effort is not just about UBS Bank (a Swiss bank holding undisclosed accounts) or any one country.

Shulman put out the message that there will be increased risk for anyone hiding assets offshore. "We have a long way to go, but our efforts will only intensify," he said. "We're going to be moving aggressively." He noted that funds are flowing out of Europe to other areas and that the IRS will be focused on multiple points "around the globe."

The commissioner announced that the IRS will be adding staff to eight overseas offices focused on international criminal investigations and will be opening new offices in Beijing, Panama City and Sydney, Australia. He also announced that the IRS is creating a new program to concentrate on the use of multiple entities by high-wealth individuals. "This will be a global effort," he said, "but will not be limited to international tax avoidance."

By Brant Goldwyn, CCH News Staff

SFC Press Release: Preliminary Results of Internal Revenue Service's Offshore Voluntary Compliance Initiative