If you have already come clean with the IRS for your offshore account and are subject to the jurisdiction of the Connecticut Department of Revenue Services, you may be wondering if the Connecticut Offshore Disclosure program is a good idea. This is my advice: Take it. Take it. Take it.
Unlike the IRS voluntary disclosure program which allows for a forgiveness of certain — but not all — penalties — the Connecticut DRS program has NO penalties. You'll just pay an interest rate of 12% (ok, some will say that interest rate is punitive) on what you owe from what would have been the original date of assessment.
Wow. What an incredible bargain. Is there more in the package?
Well no. But this is a smart move by DRS — they don't have the enforcement mechanisms the IRS does. By making the cost of compliance low, more people will come forward. Which means more money.
The IRS has a few more enforcement techniques — to say the least — so the IRS deal isn't as sweet, but still well worth it.
This is the IRS program in a nutshell: Typically, if you have a foreign account and fail to disclosure it, you are subject to a 20% "FBAR" penalty for each year you did not disclose. The FBAR penalty is calculated on the total account value — not income. And because it is relatively easy for the IRS to go back 6 years, 6 FBAR penalties of 20% would completely wipe out pretty much anything. (do the math: (1 x.20)x6 = bad times)
So the IRS "bargain" is that its voluntary disclosure program limits just one FBAR penalty of 20% of account value — just one time. AGAIN TO BE CLEAR — JUST ONE 20% PENALTY ON THE HIGHEST ACCOUNT VALUE. This is the big turn-on of the IRS program. So while not nearly as friendly as DRS, it is still dang attractive compared with prison and a complete loss of everything.
Now for those of you out there with offshore accounts who have not disclosed yet, there is still time to do so as the standard voluntary disclosure program available. But my advice is to do it quickly. The IRS is desperate for cash and once they are done working over the fine folks at UBS, I am sure they are going to be pointing their guns elsewhere.
If you need assistance with a tax issue, or if you have unreported foreign accounts, contact us. We can help.
