IRS Announces Voluntary Disclosure Program Affecting U.S. Persons With Offshore Financial Accounts

On March 26, 2009, the Internal Revenue Service ("IRS") made public a program allowing U.S. persons with foreign financial accounts to greatly reduce their exposure to significant civil penalties and, in many cases, to eliminate the prospects of criminal prosecution.

The program comes in the wake of UBS's admission to the existence of some 50,000 accounts held by U.S. persons and of increasing pressure on the IRS to deal with tax avoidance schemes utilizing offshore financial structures.

Many U.S. persons with undisclosed offshore financial arrangements have been hesitant to disclose them to the government for fear of the multiple steep penalties that may apply to such offshore financial accounts and arrangements. In many instances, particularly where trusts or foreign corporations are involved, the panoply of penalties may exceed the highest balance in the offshore account.