In our last post we discussed the National Taxpayer Advocate's position on the IRS's handling of offshore bank account issues. The IRS recently reopened its voluntary disclosure program for Miami residents, but the National Taxpayer Advocate Nina Olson recently testified before Congress regarding the IRS's handling of undisclosed offshore bank account cases.

Olson says that the IRS is cutting a sweetheart deal with people who purposefully hid assets from the government in overseas accounts while punishing those who inadvertently failed to disclose assets. The IRS recently reopened its voluntary disclosure program which allows individuals to disclose their offshore assets in exchange for a penalty and amnesty from criminal prosecution. The problem is that the automatic penalties involved with the disclosure program may mean that taxpayers end up owning more than if they had not participated in the program.

Another issue that Olson flagged was the problem of individuals who attempt to back out of the voluntary disclosure program. Olson is concerned that backing out of the disclosure program may subject taxpayers to a strenuous audit with a skeptical auditor.

The penalty for unintentionally failing to disclose offshore assets is capped at $10,000 per incident. However the most recent voluntary disclosure program provides for penalties that are up to 27.5 percent of the value of a taxpayer's most valuable offshore asset or account regardless of whether these accounts were involved in the failure to disclose. This has resulted in one taxpayer who unintentionally failed to disclose $4,000 ending up with over $550,000 in penalties.

An experienced Miami tax attorney can help taxpayers fight such unfair penalties and help them avoid being victimized by the IRS' overzealous pursuit of offshore accounts.

Source: Bloomberg, "IRS Called Easy on Criminal Tax Evaders in Watchdog's Critique," Jan. 17, 2012