IRS Offers Reduced Penalties for Certain Taxpayers under IRS 2011 OVDI

Under the 2011 offshore voluntary disclosure initiative, the IRS is allowing for reduced 5% or 12.5% penalties for certain taxpayers. As detailed in FAQ 52 , the 5% penalty is available for taxpayers who (1) inherited accounts and meet specific criteria regarding the management and use of the account, (2) are foreign residents and were not aware that they were U.S. citizens, or (3) are foreign residents, have paid foreign taxes, and have less than $10,000 in U.S. source income each year. According to FAQ 53, the 12.5% penalty is reserved for taxpayers who do not qualify for the 5% penalty, but whose highest aggregate account balance in each of the years covered by the 2011 OVDI is less than $75,000.