Some taxpayers with large offshore account  balances are also required to report additional account information, such  as the name and location of their bank, by filing a form TD F 90-22.1,  Report of Foreign Bank and Financial Accounts (FBAR). 1). As described later, the offshore programs offer a  reduced risk of criminal prosecution, and lower penalties than taxpayers  could receive if unreported offshore accounts were discovered in an audit. Other taxpayers have attempted to disclose their offshore  accounts without paying all the delinquent taxes, interest, and penalties  required by the programs. Taxpayers might also try to circumvent  some of the taxes, interest, and penalties that would otherwise be owed  in offshore programs by reporting the existence of any offshore accounts  and any income from the accounts on their current year’s tax return,  without amending prior years’ returns. Almost All 2009 OVDP Participants Received the Maximum Offshore Penalty, Almost Half Had Accounts in Switzerland, and About Half of the Revenue Collected Came from a Small Percentage of High Penalty Cases

		Summary of All 2009 OVDP Closed Cases

Participants in IRS’s 2009 OVDP had offshore accounts that varied  considerably in size. Of the 10,439 closed cases, most were assessed offshore penalties and  96 percent of those assessed penalties received the standard offshore  penalty—20 percent of the highest aggregate value of the offshore  accounts, which was also the maximum offshore penalty rate in the 2009  OVDP. The 20 percent penalty was generally levied when the total  account value was greater than $75,000 and when taxpayers used the  accounts (e.g., made deposits or withdrawals) during the period under  review (2003 to 2008). 3). For large penalty cases, we estimate that more than 50 percent of  taxpayers had one or more bank accounts with Swiss bank UBS. IRS Generally Has Used 2009 OVDP Data Strategically, But Has Not Used the Data to Identify Additional Opportunities to Educate Taxpayers on Offshore Filing Requirements

		IRS Used 2009 OVDP Data to Identify Noncompliance Involving Additional Banks and Countries and to Improve Subsequent Offshore Voluntary Disclosure Programs

As previously discussed, one of the intended purposes of the 2009 OVDP  was mining, or analyzing, data collected from OVDP applications and  audits of participants and nonparticipants to identify entities and  individuals who promoted or otherwise helped U.S. citizens hide assets  and income offshore. In our case file review, we found examples of immigrants who stated in  their 2009 OVDP applications that they were unaware of their FBAR filing  requirements. IRS officials from the Offshore Compliance Initiative office agree that  more could be done to improve taxpayer education and outreach about  offshore reporting requirements. IRS May Not Be Identifying a Large Number of Quiet Disclosures or Other Attempts to Circumvent Some of the Taxes, Interest, and Penalties that would be Otherwise Owed by Not Participating in an Offshore Program

		Taxpayer Use of Quiet Disclosures to Avoid Offshore Penalties Involves Significant Risk

Quiet disclosures matter because if IRS does not identify them, it  undermines the incentive to participate in the offshore programs. When quiet disclosures remain  undetected, they also result in lost revenue for the government. IRS also looked at amended returns with increased tax  assessments over an established threshold during tax year 2003 to tax  year 2010. Together, these four efforts led to the review of several thousand tax  returns. Given the importance of IRS’s ability to detect quiet disclosures and  evidence that they exist, we tested a different methodology to identify  potential quiet disclosures, and found many more than IRS detected. IRS agreed with our  methodology as reasonable and appropriate. From tax year 2007 to tax year 2010 (the most recent data  available), IRS estimated that the number of taxpayers reporting offshore  accounts on Form 1040, Schedule B nearly doubled to 516,000, as  shown in figure 4. unreported offshore income. Through these programs, IRS has collected  more than $5.5 billion to date, brought tens of thousands of taxpayers into  compliance, and gained increased information on offshore  noncompliance. IRS may also have missed other attempts at circumvention by not  researching the upward trends of taxpayers reporting offshore  accounts for the first time. Explore options for employing a methodology for identifying and  pursuing potential quiet disclosures to provide more assurance that  actual quiet disclosures are not being missed and then implement the  best option. Appendix I: Objectives, Scope and Methodology

The objectives of this report were to (1) describe the nature of the  noncompliance of taxpayers participating in the 2009 Offshore Voluntary  Disclosure Program (OVDP), (2) determine the extent to which Internal  Revenue Service (IRS) used data from the 2009 OVDP in order to better  prevent and detect future noncompliance, and (3) assess IRS’s efforts to  identify taxpayers who may have attempted quiet disclosures or other  ways of circumventing some of the taxes, interest, and penalties that  would otherwise be owed in its offshore programs. We confirmed this  methodology with IRS officials.
Why GAO Did This Study

Tax evasion by individuals with unreported offshore financial accounts was estimated by one IRS commissioner to be several tens of billions of dollars, but no precise figure exists. IRS has operated four offshore programs since 2003 that offered incentives for taxpayers to disclose their offshore accounts and pay delinquent taxes, interest, and penalties. GAO was asked to review IRSs second offshore program, the 2009 OVDP. This report (1) describes the nature of the noncompliance of 2009 OVDP participants, (2) determines the extent IRS used the 2009 OVDP to prevent noncompliance, and (3) assesses IRSs efforts to detect taxpayers trying to circumvent taxes, interests, and penalties that would otherwise be owed. To address these objectives, GAO analyzed tax return data for all 2009 OVDP participants and exam files for a random sample of cases with penalties over $1 million; interviewed IRS Offshore officials; and developed and implemented a methodology to detect taxpayers circumventing monies owed.

What GAO Found

As of December 2012, the Internal Revenue Service's (IRS) four offshore programs have resulted in more than 39,000 disclosures by taxpayers and over $5.5 billion in revenues. The offshore programs attract taxpayers by offering a reduced risk of criminal prosecution and lower penalties than if the unreported income was discovered by one of IRS's other enforcement programs. For the 2009 Offshore Voluntary Disclosure Program (OVDP), nearly all program participants received the standard offshore penalty--20 percent of the highest aggregate value of the accounts--meaning the account value was greater than $75,000 and taxpayers used the accounts (e.g., made deposits or withdrawals) during the period under review. The median account balance of the more than 10,000 cases closed so far from the 2009 OVDP was $570,000. Participant cases with offshore penalties greater than $1 million represented about 6 percent of all 2009 OVDP cases, but accounted for almost half of all offshore penalties. Taxpayers from these cases disclosed a variety of reasons for having offshore accounts, and more than half of them had accounts at Swiss bank UBS.
Using 2009 OVDP data, IRS identified bank names and account locations that helped it pursue additional noncompliance. Based on a review of cases, GAO found examples of immigrants who stated in their 2009 OVDP applications that they were unaware of their offshore reporting requirements. IRS officials from the Offshore Compliance Initiative office said they have not targeted outreach efforts to new immigrants. Using information from the 2009 OVDP, such as the characteristics of taxpayers who were not aware of their reporting requirements, to increase education and outreach to those populations could promote voluntary compliance.
IRS has detected some taxpayers with previously undisclosed offshore accounts attempting to circumvent paying the taxes, interest, and penalties that would otherwise be owed, but based on GAO reviews of IRS data, IRS may be missing attempts by other taxpayers attempting to do so. GAO analyzed amended returns filed for tax year 2003 through tax year 2008, matched them to other information available to IRS about taxpayers' possible offshore activities, and found many more potential quiet disclosures than IRS detected. Moreover, IRS has not researched whether sharp increases in taxpayers reporting offshore accounts for the first time is due to efforts to circumvent monies owed, thereby missing opportunities to help ensure compliance. From tax year 2007 through tax year 2010, IRS estimates that the number of taxpayers reporting foreign accounts nearly doubled to 516,000. Taxpayer attempts to circumvent taxes, interest, and penalties by not participating in an offshore program, but instead simply amending past returns or reporting on current returns previously unreported offshore accounts, result in lost revenues and undermine the programs' effectiveness.

What GAO Recommends

Among other things, GAO recommends that IRS (1) use offshore data to identify and educate taxpayers who might not be aware of their reporting requirements; (2) explore options for employing a methodology to more effectively detect and pursue quiet disclosures and implement the best option; and (3) analyze first-time offshore account reporting trends to identify possible attempts to circumvent monies owed and take action to help ensure compliance. IRS agreed with all of GAO's recommendations.