The Internal Revenue Service has increased the scrutiny of overseas bank accounts and has rescinded amnesty for some individuals who disclosed their overseas accounts and were accepted into the program.
Taxpayers who have offshore accounts are required to file a Report of Foreign Bank and Financial Accounts (FBAR) annually with the Treasury. Taxpayers who do not file their FBARs can be fined for each year they fail to file.
Since 2009, the IRS has gone after taxpayers who hide money abroad in overseas accounts. The IRS has offered amnesties to taxpayers who confess that they have undisclosed accounts abroad. The IRS has repeatedly stated that in order to be accepted into the amnesty program, taxpayers must give themselves up to the IRS before they are discovered by the IRS. Once accepted into the amnesty program, the taxpayer no longer faces criminal prosecution. However, they will need to pay any interest, penalties and back taxes owed.
Recently in an unprecedented move, the Internal Revenue Service has rescinded the amnesty it had initially granted to some individuals. There have been press reports that stated that certain Bank Leumi clients who were U.S. taxpayers and had disclosed their offshore accounts and were initially accepted into the amnesty program, but have since been disqualified by the IRS after review. Amnesty has been rescinded for only a small number of individuals, it has been estimated that since September 2013 the IRS has sent letters to between 50 and 100 taxpayers with accounts at Bank Leumi and United Bank Mizrahi in Israel.
The IRS is unable to comment on specific cases so there is no official statement as to why the taxpayer were disqualified, but it could have occurred if they did not make an accurate and complete disclosure to the IRS of the details of their account. There is also the possibility that there is an administrative error within the IRS but this is not likely. Taxpayers are not eligible for the OVDP if the IRS is auditing or investigating a taxpayer, or if the taxpayer is known to have secret accounts, so a taxpayer could have initially been offered amnesty then had it rescinded because the IRS had already commenced an investigation of them.
IRS tax experts believe that the IRS will not prosecute taxpayers who were disqualified from the program since many of them have already disclosed their financial information to the government. These taxpayers most likely will face large monetary fines.
Criminal prosecutions are rare but happen on a regular basis. Since it launched in 2009, more than 35,000 taxpayers have participated in the Offshore Voluntary Disclosure Program (OCDP). Taxpayers who are accepted into this program must pay all back taxes, interest, and penalties, and an FBAR penalty. Through this program the IRS has collected over $5 billion so far.