New IRS Guidance in the 2011 IRS Offshore Voluntary Disclosure Initiative

Posted on June 16, 2011 by Jeffrey H. Schechter

In February 2011 the IRS announced the Offshore Voluntary Disclosure Initiative (OVDI) for taxpayers with undisclosed foreign accounts.  This program was a follow up to a program initiated by the IRS in 2009 on the same topic following civil and criminal cases brought by the Department of Justice against Swiss bank UBS AG seeking the release of information concerning secret accounts maintained by U.S. persons with the Swiss bank.  Approximately 15,000 taxpayers came forward under the 2009 program which required the payment of taxes on omitted income going back to 2003, a 20% penalty on those back taxes and a 20% miscellaneous penalty on the high balance of the undisclosed foreign account between 2003 and 2008. 

Under the 2011 OVDI, subject to limited circumstances where a reduced penalty may apply, the miscellaneous penalty has been increased by 5% to 25% of the high balance and taxpayers must still pay the taxes on omitted income going back to 2003.  The new program expires August 31, 2011, but can be extended by up to 90 days under certain circumstances.

The February 2011 OVDI is similar to the 2009 program with some exceptions including an increase in the penalty from 20% to 25%, and an eight year lookback rather than a six year lookback on back taxes.  Taxpayers who do not come forward face much more severe penalties including a fraud penalty equal to 75% of the back taxes and a miscellaneous penalty equal to 50% of the high balance each year (potentially 300% in the aggregate) as well as possible criminal prosecution.

Guidance issued in June 2011 expands eligibility for a 5% penalty (in lieu of a 25% penalty) and clarifies the procedure for individuals choosing to “opt out” of the OVDI.  Those who "opt out" are subject to a more detailed audit and penalties will be determined following the completion of that exam. Cole Schotz Partner Jeffrey Schechter was recently quoted on this issue in the following article titled, "IRS Guidance on Offshore Asset Disclosure Program Perceived Beneficial to Taxpayers" published by BNA Daily Tax Report, which provides some insight into the new guidance. Also, all of the updated frequently asked questions pertaining to the OVDI can be found here.

 

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New Jersey Raising The Income Tax Rate For 2009

Posted on July 7, 2009 by Gary A. Phillips

On June 30, Governor Corzine signed into law the 2010 state budget bill. Included in the bill are increases in the personal income tax rates for New Jersey taxpayers for one year, retroactive to January 1, 2009.

 
For taxpayers with taxable income in excess of $400,000 but less than $500,000, the tax rate increases from 6.37% to 8%, for taxpayers with taxable income between $500,000 and $1 million, the tax rate increases from 8.97% to 10.25%, and for taxpayers with taxable income in excess of $1 million, the tax rate increases from 8.97% to 10.75%.


A New Jersey taxpayer with taxable income of $1.1 million in 2009 now will pay New Jersey income tax equal to $95,480. Prior to the change in the rates, the same taxpayer would have paid $81,627.50. In this example, the percentage change in the tax rate is equal to 1.26%.


Earlier this year, New York also raised its income tax rates effective through December 31, 2011. For taxpayers with taxable income in excess of $300,000 but less than $500,000, the tax rate increases from 6.85% to 7.85% and for taxpayers with taxable income in excess of $500,000, the tax rate increases from 6.85% to 8.97%.


For those taxpayers who may have the ability to effectively change their domicile to other states with less of an income tax burden (i.e. Florida with no state income tax), now may be the time to seriously consider the move.
 

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Tell IRS If You Have Foreign Bank Account?

Posted on July 6, 2009 by Jeffrey H. Schechter

The Internal Revenue Service (IRS) said it will aggressively prosecute people with undisclosed foreign bank accounts.  At the same time, the agency recently announced a program that can help people avoid prosecution and reduce their financial exposure.  David Kohane, a member of the Litigation Department and Jeffrey Schechter, a member of the Tax, Trusts & Estates Department, had an article on the subject published on July 2, 2009 in the "Ask The Experts" column of The Record.  Click here to read the article.

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