The Internal Revenue Service is offering taxpayers with undisclosed income from offshore accounts a unique opportunity to participate in a new, voluntary disclosure program in order to get current on their tax returns. The 2011 Offshore Voluntary Disclosure Initiative (OVDI), available only through August 31, 2011, offers specific benefits in an effort to encourage taxpayers to disclose foreign accounts rather than risk IRS detection and possible criminal prosecution. In addition, the OVDI includes new guidelines to offer fairness to taxpayers with smaller amounts of undisclosed assets or unusual situations.

A similar initiative offered by the IRS ended on Oct. 15, 2009. This 2009 voluntary disclosure program resulted in 15,000 voluntary disclosures. Since that time, more than 3,000 taxpayers have come forward to the IRS with bank accounts stemming from all corners of the world. These taxpayers will also be eligible to take advantage of the special provisions of the new initiative.

For the OVDI, there is a new penalty framework that requires individuals to pay a penalty of 25 percent of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003 to 2010 time period. In some circumstances, taxpayers may be eligible for 5 or 12.5 percent penalties for taxpayers whose offshore accounts or assets did not surpass $75,000 in any calendar year. Participating taxpayers also must pay back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties. Taxpayers participating in the OVDI must file all original and amended tax returns and include payment for taxes, interest and accuracy-related penalties by the August 31st deadline.

In all intents and purposes, the OVDI offers clear benefits to encourage taxpayers to come in now rather than risk IRS detection. Taxpayers hiding assets offshore who do not come forward will face far higher penalty scenarios as well as the possibility of criminal prosecution.

It is worth noting that the IRS has made available the 2011 OVDI information in eight foreign languages for those taxpayers with undisclosed offshore accounts. The IRS took this step to reach taxpayers whose primary language may not be English.