A U.S. crackdown on Americans using offshore banks to avoid taxes began with Swiss banks, but has widened to Israel.
Failing to disclose a foreign account on a 1040 is a criminal offense. In January 2012, the IRS revived the voluntary disclosure program, which remains open which provides that in return for escaping criminal charges, taxpayers accepted into the current version of the OVDP must file eight years of amended tax returns, pay all back taxes, interest and penalties due (including a 20% accuracy penalty on offshore-related underpayments) and pay an FBAR penalty equal, in most cases, to 27.5% of the maximum held in the undisclosed offshore accounts during the eight year period.
If the IRS already has a taxpayer under audit, is investigating a taxpayer, or has his name on a list of taxpayers with secret accounts (for example, one obtained as a result of a John Doe summons to a foreign bank or a tax preparer), he isn’t eligible for the OVDP.
Criminal clearance letters are issued by the IRS’ Criminal Investigation division based on its checks of both criminal and civil proceedings. Many Israeli Bank Clients have already received their criminal clearance letter for the OVDP and are now being informed that they are invalid.
The IRS CI knows exactly what they are doing in rescinding the previously granted clearance. It appears to be part of a larger situation regarding the investigation of Bank Leumi, its representatives, etc. Many of the taxpayers not only gotten written criminal clearance letters as a result of participating in the OVDP, but had also have proceeded to submit a complete disclosure including amended returns, FBARs, account information, etc.
Ironically, Bank Leumisent a letter to its U.S. account holders last December telling them about the OVDP and suggesting they consult with an attorney about participating in it.
The IRS’ sudden Bank Leumi flip flop, could have profound consequences for the offshore disclosure program, making those with hidden accounts less willing to come forward.
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