Bloomberg News

IRS Amnesty Led Offshore Account Holders to Pay, Report Says

November 01, 2011

(Updates with comment from report about long-term effects of disclosure starting in the eighth paragraph.)

Oct. 27 (Bloomberg) -- The Internal Revenue Service effectively handled requests from a large number of offshore bank account holders who signed up for a 2009 partial amnesty, a government watchdog agency said in a report.

The IRS’s smooth administration of the offshore voluntary disclosure initiative “increased taxpayer compliance,” according to the report released today by the Treasury’s Inspector General for Tax Administration.

The 2009 initiative attracted about 15,000 U.S. taxpayers with offshore accounts, and a second disclosure program this year attracted 15,000 more. Taxpayers have paid at least $2.7 billion in back taxes and reduced penalties through the programs, IRS Commissioner Douglas Shulman said Sept. 15.

“Our special voluntary disclosure programs have been a resounding success,” he said. “We are clearly bringing people back into the U.S. tax system -- and we are bringing revenue into the U.S. Treasury.”

IRS spokesman Dean Patterson declined to comment directly on the inspector general’s report.

The partial amnesties allowed filers to comply with tax law, avoid larger civil penalties and reduce the risk of criminal prosecution.

Ongoing Investigation

The disclosure initiatives are part of an ongoing U.S. government crackdown on offshore tax evasion triggered by an investigation of UBS AG, the largest Swiss bank. In 2009, UBS avoided prosecution by paying $780 million, acknowledging it had fostered tax evasion and providing details on 250 secret bank accounts. It later disclosed an additional 4,450 accounts.

The report said the true effects of the program “may not be measurable for years as the information and intelligence derived from it may spawn future criminal and civil income tax investigations of banks, financial institutions, and tax haven promoters.”

“Our report found that the IRS’s voluntary disclosure practices were effective, and cases were being appropriately assigned and verified even with the unusually high volume of disclosure requests received and accepted,” the inspector general for tax administration, J. Russell George, said in a statement.

George also said the IRS needed to improve record-keeping in order to facilitate data mining used to identify trends or patterns of non-compliance.

IRS Agreement

In a response to the report, the IRS agreed to bolster its information-gathering efforts. The agency balked at a recommendation that revenue agents initial each page of settlement agreements to guard against alterations.

The IRS said it hasn’t encountered a single instance of an altered agreement in the disclosure program.

The inspector general’s investigators also surveyed tax lawyers and found that a majority “believed taxpayers were treated in a fair and consistent manner,” the report said.

The report said that the survey appeared to refute criticism in a widely circulated Sept. 21, 2010, BNA Daily Tax Report article that the disclosure initiative required voluminous paperwork.

The authors of the BNA article, tax attorneys Scott Michel, president of Caplin & Drysdale Chartered, and Mark Matthews, a partner with Morgan, Lewis & Bockius LLP, said in a statement today that while straightforward cases “were for the most part treated fairly and consistently,” more complex cases “did not fit well with the rigid approach implemented by the program.”

“The numerous practitioners we spoke to agreed with our view that the program was burdensome, and we stand by our principal argument that the IRS could have accomplished a lot more with OVDI 1 while devoting far fewer resources to its implementation,” the statement said, referring to the disclosure initiative by its acronym.

--Editors: Jodi Schneider, Don Frederick

To contact the reporter on this story: Andrew Zajac in Washington at azajac@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


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