UK: Options Remain For US Taxpayers With Undisclosed Accounts

Last Updated: 21 September 2013
Article by Michael Parets and Jay Rubinstein

With the threat of exposure looming over the heads US taxpayers with undisclosed accounts, particularly in light of the Swiss bank voluntary disclosure programme and other recent efforts by the US authorities to combat tax evasion, the need to regularise has never been more urgent.

By way of background, US taxpayers are subject to US tax on a worldwide basis. This includes US citizens (regardless of where they reside or whether they hold dual citizenship or a valid US passport), US 'green card' holders (regardless of where they actually reside) and individuals who spend a 'substantial' number of days in the US.

US taxpayers must report and pay tax on income and gains from any non–US bank account or securities account and, in many cases, income earned by, and distributions received from, offshore companies, trusts, foundations and other structures. A US taxpayer is also required to file a report ('Foreign Bank Account Report', or 'FBAR') with the US Treasury disclosing foreign bank accounts with aggregate dollar values in excess of $10,000 and must file a separate form if he has substantial interests in non–US securities.

A US taxpayer who fails to meet any of these tax or reporting obligations is liable for the tax due, interest, and penalties. If the US authorities find that the failure to meet these obligations was intentional, a taxpayer could face criminal penalties, which may include confiscatory monetary penalties that can wipe –out the undisclosed accounts and even prison time. In the face of this potential exposure, US taxpayers with undisclosed accounts must consider their disclosure options and the best approach to rectify failures to meet these obligations.

The 'Offshore Voluntary Disclosure Programme' (the 'OVDP') allows US taxpayers to come forward, disclose details of the undisclosed accounts and income, and settle the unpaid tax, interest and penalties in exchange for receiving conditional protection against criminal prosecution and possibly lower applicable penalties. Currently, the penalties include a payment of 27.5% of the highest value of the taxpayer's relevant offshore assets over the prior eight years (the penalty rate has increased over the course of the OVDP).

An important prerequisite for qualifying for the OVDP is that the taxpayer must come forward to the IRS before it initiates an investigation of the taxpayer. Once an investigation has begun, it is too late to initiate an OVDP application.

The first step in the OVDP is for the taxpayer to send his identifying information to the IRS for 'preclearance' to confirm that the taxpayer is not presently under audit or already subject to a criminal investigation. Once confirmed, the taxpayer must submit a standardised statement to the IRS disclosing the unreported accounts and the circumstances of opening and maintaining them, the highest value of the accounts over the past eight years, and other account identifying information. The taxpayer must then submit to the IRS amended tax returns reporting all of the taxpayer's income, including any previously omitted income, and would pay the applicable taxes, interest and penalties. If the taxpayer's voluntary disclosure process is timely, complete and truthful and the taxpayer co–operates with the IRS, then the IRS will not recommend criminal prosecution to the US Department of Justice and will waive other monetary penalties that may otherwise apply (including a penalty of 50% of the value of an unreported account for each year the account was not reported on the FBAR).

The IRS has announced a separate procedure (referred to as the 'streamlined process') for certain non–residents of the United States (including dual citizens) who have not filed US income tax and information returns to come into compliance, which generally requires fewer back filings and presents the potential for reduced (or no) penalties.

Another disclosure method a taxpayer may consider is the so–called 'quiet disclosure' method where the taxpayer rectifies his failure to meet his US tax and reporting obligations by simply filing new or amended tax returns and information returns with payment of the taxes due and interest and the hope that the IRS does not respond with an imposition of high penalties and criminal prosecution. While this informal method is used by taxpayers and known to the IRS, the IRS has stated that it may select and audit quietly–filed amended returns. With this method there is no protection against criminal prosecution, and the IRS could attempt to assert higher monetary penalties than the 27.5% penalty accompanying the OVDP.

Determining the best approach is a fact–intensive exercise, and it is often the case that the best solution for a taxpayer is not the most palatable. But with the approach of the Foreign Account Tax Compliance Act (FATCA), which will require financial institutions to collect information about their account holders and automatically transmit information on US account holders to the US government, and the new Swiss bank voluntary disclosure programme introduced last month, designed to facilitate the disclosure of US taxpayers with undisclosed accounts, the option of remaining in the shadows is coming to a close.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions