NEWSFLASH: 
 +++ If you missed the amnesty deadline you may want to explore a regular Voluntary Disclosure Agreement (VDA) with us. +++ 

Relief for Americans and Green Card Holders in Germany

American Citizens and Green Card Holders living abroad (U.S. Citizens, Resident Aliens Abroad, Expatriates) have received substantial relief from the "one-size-fits-all" approach of the original 2011 Offshore Voluntary Disclosure Initiative ("OVDI"). On June 2, 2011, the Internal Revenue Service ("IRS") finally acknowledged that the same yardstick for undisclosed offshore accounts should not measure U.S. residents and foreign residents alike.

American Citizens and Green Card Holders living in Germany who have timely filed German tax returns and had $10,000 or less of U.S. source income each year of the reporting period [2003 - 2010] qualify for a reduced 5 percent offshore penalty. In addition, for these individuals the offshore penalty will not apply to non-financial assets such as real property, business interests, or artworks purchased with funds for which the taxpayer can establish that all applicable taxes have been paid, either in the U.S. or in the country of residence.

The June 2, 2011 updates include a number of other changes favorable to American Citizens and Green Card Holders living in abroad.

The second major change is the IRS acknowledgement that 'opting out' of the 2011 OVDI may be the 'preferred approach' in some cases. This could allow individuals to obtain significantly lower penalties than would otherwise apply under the fixed terms of the program. In some instances, it may even be possible to eliminate the 25% 'in lieu of' penalty through so-called 'reasonable cause' defenses. This modification to the terms of the 2011 OVDI indicates a change in IRS thinking regarding 'opt outs' and an acknowledgement that the result under the 2011 OVDI may be unduly harsh in some situations.

The third major change is the potential availability of an extension of up to 90 days after August 31, 2011 to complete an individual's submission. Originally, an eligible individual who wanted to participate in the 2011 OVDI had to submit a complete package, including all amended tax returns, amended informational filings, full payment of the taxes, interest and certain penalties, and various other documents by August 31, 2011.

In principle, these changes remove some of the major obstacles for non-filers. The decision dynamics have changed. Filing under the 2011 Offshore Voluntary Disclosure Initiative ("OVDI") may now make sense.

There is more good news. Taxpayers who participated in the 2009 Offshore Voluntary Disclosure Program ("OVDP") may be eligible for a redetermination to the 5% reduced penalty and a large refund

1. if they have been living in Germany,
2. they have timely filed German tax returns and
3. they had $10,000 or less of U.S. source income each year, 2003 - 2008.

Foreign Bank Account Reporting (FBAR)

On February 8, 2011, the Internal Revenue Service ("IRS") announced the 2011 Offshore Voluntary Disclosure Initiative ("OVDI") for taxpayers with undisclosed (hidden) offshore accounts. This new OVDI, which will be available through August 31, 2011, will require taxpayers to report and pay back taxes and interest on unreported income for all calendar years from 2003 through 2010. The new OVDI also contains several significant changes from the 2009 Offshore Voluntary Disclosure Program, which ended October 15, 2009. Notably, the miscellaneous penalty increased from 20% to 25% of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003 through 2010 period. The IRS also created a separate 12.5% penalty alternative for taxpayers whose highest aggregate account balance in each of the years covered by the OVDI is less than $75,000. The aggregate account balances include the fair market value of assets in undisclosed offshore entities and the fair market value of any foreign assets that either were acquired with improperly untaxed funds or produced improperly untaxed income. The June 2, 1011 changes, finally, made the 5% penalty relevant to American Citizens and Green Card Holders living in Germany whereas before to conditions rarely if ever could be met.

The new OVDI also allows for the alternative mark-to-market calculation of income from investments in passive foreign investment companies (PFIC), such as offshore mutual funds, offshore hedge funds or similarly structured offshore products, a feature that was belatedly added to the 2009 Offshore Voluntary Disclosure Program. In addition to paying the unreported tax and interest, as well as the 25% miscellaneous penalty discussed above, taxpayers will also be required to pay (1) a 20% accuracy-related penalty under IRC § 6662(a) on the full amount of the taxpayer's underpayments for all years, (2) a failure to file penalty under IRC § 6651(a)(1), if applicable, and (3) a failure to pay penalty under IRC § 6651(a)(2), if applicable.

The IRS has indicated that it will require a substantially completed package (including complete and accurate amended United States federal income tax and informational returns, and payment of any taxes, interest and penalties) by the August 31, 2011 deadline; a three months extension for submitting certain documents may however be granted. It is imperative that taxpayers with undisclosed offshore accounts or income begin the preparation of the voluntary disclosure application as soon as possible.

Our team has represented many satisfied clients in the 2009 Offshore Voluntary Disclosure Program ("OVDP"), including the negotiation of reduced penalties. Already, we were able obtain very substantial refunds in redeterminations for American Citizens and Green Card Holders living in Germany who participated in the 2009 Offshore Voluntary Disclosure Program ("OVDP") because they qualified they for the 5% reduced penalty criteria of the 2011 OVDI, but paid a higher penalty amount under the 2009 OVDP.

Please call us for a confidential evaluation.