Americans who have been using illegal offshore tax shelters can escape certain penalties and criminal prosecution if they come forward, confess -- and turn over the name of the promoter who sold them the shelter, the Internal Revenue Service said yesterday.
The information on promoters is "a key component" of the agency's partial amnesty program, which is aimed at taxpayers who stash assets in various tax havens and then use credit or debit cards to get access to them, Deputy IRS Commissioner Dale Hart said in an interview.
There is no good estimate of how much individuals have hidden in such offshore accounts, officials said, though hundreds of thousands of Americans are believed to have them.
While it is not illegal to have an offshore account, Hart noted that the accounts being pursued are often sold on the grounds that the IRS couldn't find out about them. Those who own them should realize, she said, that the agency is making progress on identifying them. The IRS has won a series of court orders allowing it to obtain credit records from Visa, MasterCard and other card companies so it can track down participants.
The IRS already has 1,000 cases under investigation, and more are coming, Hart said. The names of athletes and entertainers -- "names you'd recognize" -- and a variety of professionals have already surfaced, she said. "Your neighbor may be using one of these," she said.
People weighing the costs of confessing against the chance of getting caught should also understand that if only one user of a shelter identifies the promoter, the IRS will not only go after the promoter but also seek the names of all the promoter's other clients and pursue them, too, Hart said. Taxpayers will have until April 15 to come forward.
Hart said the current probes have turned up non-tax abuses, too, such as hiding assets from creditors, divorcing spouses and bankruptcy proceedings. She said the IRS is limited in its ability to disclose such information. But because many of the investigations are done jointly with other agencies, appropriate law enforcement organizations can learn what has been done.
The individual amnesty program is reminiscent of a strategy the agency has been employing with corporate taxpayers, allowing them to avoid penalties if they disclose tax shelters they have used. That program, which ran for four months last year, produced 1,664 disclosures of questionable transactions from 1,206 taxpayers, the IRS said.
Under the program for individuals, dubbed the Voluntary Compliance Initiative, eligible taxpayers will have to file or amend their returns and pay interest and certain civil penalties, as well as the taxes they owe. The interest and penalties depend on the amount of unpaid tax, the years involved, whether a return was inaccurate or if a return should have been filed and was not, according to the IRS.
For example, a taxpayer who understated his income to avoid $100,000 in taxes in 1999 would wind up paying $149,319 to the government. This includes the tax liability plus $29,319 in interest and an additional accuracy-related penalty of $20,000.
If a taxpayer did not come forward and was nabbed by the IRS, the tax liability generally would include the civil fraud penalty of $75,000, and therefore higher interest of $42,758. The total amount due would be $217,758, without considering probable additional civil penalties for failure to file certain returns.