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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

March 2013: 

Offshore Tax Evasion: 

IRS Has Collected Billions of Dollars, but May be Missing Continued 
Evasion: 

GAO-13-318: 

GAO Highlights: 

Highlights of GAO-13-318, a report to congressional requesters. 

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 IRS’s 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 IRS’s 
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. 

View [hyperlink, http://www.gao.gov/products/GAO-13-318]. For more 
information, contact James R. White, (202) 512-9110 or whitej@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

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: 

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 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: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Objectives, Scope and Methodology: 

Appendix II: Events that Influenced Participation in IRS's Offshore 
Programs: 

Appendix III: Sample 2009 and 2012 Offshore Program Application 
Letters: 

Appendix IV: Hypothetical Examples Comparing Account Balances, Length 
of Account Ownership, and Penalties: 

Appendix V: 2009 Offshore Voluntary Disclosure Program Participants 
with Employer Identification Numbers: 

Appendix VI: Additional 2009 Offshore Voluntary Disclosure Program 
Participant Characteristics: 

Appendix VII: Data Collected from a Sample of 30 2009 Offshore 
Voluntary Disclosure Program Case Files with Large Penalties: 

Appendix VIII: Quiet Disclosure Analysis Results: 

Appendix IX: Comments from the Internal Revenue Service: 

Appendix X: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Comparison of IRS's Offshore Voluntary Disclosure Programs: 

Table 2: Selected Penalty Information for 2009 OVDP Individual 
Taxpayers with Closed Cases as of November 29, 2012: 

Table 3: Type and Amount of Offshore Penalties for 2009 OVDP Closed 
Cases (Individual Taxpayers) as of November 29, 2012: 

Table 4: 2008 Business Filing Requirements for 2009 OVDP Business 
Participants: 

Table 5: Self-Reported Industry Code on 2008 Tax Return for 2009 OVDP 
Businesses: 

Table 6: Taxpayer and 2009 OVDP Participant Income and Demographics 
for Tax Year 2008: 

Table 7: Selected Offshore Account Balances, Taxes, and Penalties from 
a Case Study of 30 2009 OVDP Cases with Penalties of $1 Million or 
Greater: 

Table 8: Selected Data Collection Instrument Questions and Response 
Counts from Sample of 30 2009 OVDP Case Files with Penalties of $1 
Million or Greater: 

Figures: 

Figure 1: Illustration of Taxpayer and Information Reporting on 
Offshore Accounts: 

Figure 2: IRS Process for Developing Offshore Disclosure Programs: 

Figure 3: Top Ten Locations of Offshore Accounts on 2008 FBARs Filed 
by 2009 OVDP Participants Compared to All 2008 Individual FBAR Filers: 

Figure 4: Taxpayers Reporting Foreign Financial Accounts: 

Figure 5: Events That Influenced Participation in IRS's Offshore 
Programs: 

Figure 6: Hypothetical Comparison of Offshore Account Growth for 
Compliant (Reported and Taxed) and Noncompliant (Unreported and 
Untaxed) Taxpayers, and Changes in Account Balances by Participating 
in the 2009 OVDP: 

Figure 7: Locations of Offshore Accounts as Disclosed in a Sample of 
30 2009 OVDP Cases with Penalties of $1 Million or Greater: 

Figure 8: Bank Names of Offshore Accounts as Reported in a Sample of 
30 2009 OVDP Cases with Penalties of $1 Million or Greater: 

Abbreviations: 

AGI: Adjusted Gross Income: 

CDW: Compliance Data Warehouse: 

CI: Criminal Investigation: 

CIMIS: Criminal Investigation Management Information System: 

DOJ: Department of Justice: 

EIN: Employer Identification Number: 

ERIS: Enforcement Revenue Information System: 

FATCA: Foreign Account Tax Compliance Act: 

FBAR: Report of Foreign Bank and Financial Accounts: 

FinCEN: Financial Crimes Enforcement Network: 

IRS: Internal Revenue Service: 

NAICS: North American Industry Classification System: 

OVDP: Offshore Voluntary Disclosure Program: 

PAIR: Planning, Analysis, Inventory and Research: 

PFIC: Passive Foreign Investment Company: 

SOI: Statistics of Income: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

March 27, 2013: 

The Honorable Max Baucus: 
Chairman: 
The Honorable Orrin G. Hatch: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Dave Camp: 
Chairman: 
Committee on Ways and Means: 
House of Representatives: 

By law, U.S. citizens are required to report worldwide income from all 
sources, including income from offshore accounts.[Footnote 1] While 
taxpayers can hold offshore accounts for a number of legitimate 
reasons, some use them to illegally reduce their tax liabilities, 
often by not reporting the income earned on these accounts. There is 
no precise estimate of how much money the U.S. Treasury loses due to 
unreported income from offshore accounts. Former Internal Revenue 
Service (IRS) Commissioner Charles O. Rossotti said at a congressional 
hearing in 2002 that he believed offshore noncompliance to be several 
tens of billions of dollars, but did not have a precise number. 
[Footnote 2] IRS has been limited in its ability to uncover and pursue 
taxpayers with unreported offshore accounts by traditional means, in 
part because the reporting requirements that apply to domestic 
financial institutions do not generally apply to foreign institutions. 
[Footnote 3] 

Since 2003, IRS has carried out four offshore voluntary disclosure 
programs, collectively referred to in this report as "offshore 
programs," that offer incentives for taxpayers to disclose their 
offshore accounts and pay delinquent taxes, interest, and penalties. 
[Footnote 4] Generally, the programs offered somewhat reduced 
penalties and no risk of criminal prosecution if eligible taxpayers 
fully disclosed their previously unreported offshore accounts and paid 
taxes due plus interest. As of December 2012, these offshore programs 
have resulted in more than 39,000 disclosures and over $5.5 billion in 
revenues. 

Some taxpayers with unreported foreign accounts may have chosen not to 
participate in one of IRS's offshore programs, and attempted to 
circumvent some taxes, interest, and penalties owed. One technique, 
which IRS calls a "quiet disclosure," is to file amended tax returns 
that report offshore income from prior years. Another technique is for 
taxpayers to declare existing offshore accounts for the first time 
with their current year's tax return, but not amend prior year 
returns. If successful, these techniques result in lost revenue for 
the Treasury, and undermine the offshore programs' fairness and 
effectiveness. 

You asked us to review IRS's 2009 Offshore Voluntary Disclosure 
Program (OVDP)--IRS's second offshore program and the most recent 
program with enough closed cases for analysis. In this report we (1) 
describe the nature of the noncompliance of taxpayers participating in 
the 2009 OVDP, (2) determine the extent to which 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. 

To describe the characteristics of the population of taxpayers 
participating in the 2009 OVDP, we analyzed six years of tax return 
data from all participants. To get additional information about 
taxpayers with large offshore accounts, we analyzed IRS's case files 
from a random sample of closed 2009 OVDP cases with penalties of $1 
million or greater. To determine the extent to which IRS used data 
from the 2009 OVDP to better prevent and detect future noncompliance, 
we reviewed changes that IRS made to subsequent offshore programs. We 
also interviewed IRS officials from the Offshore Compliance Initiative 
office about actions taken to identify and target additional offshore 
noncompliance. To assess IRS's efforts to detect quiet disclosures, we 
used IRS tax return data from the tax years covered by the 2009 OVDP, 
tax year 2003 through tax year 2008, to identify potential quiet 
disclosures and compared our results with those from IRS. We also used 
tax return data from tax year 2003 through tax year 2010 from IRS and 
Report of Foreign Bank and Financial Accounts (FBAR) data from the 
Financial Crimes Enforcement Network (FinCEN) to assess other ways 
taxpayers may be circumventing some of the taxes, interest, and 
penalties owed.[Footnote 5] For the purposes of this review, we 
determined that the data used in our analyses were reliable. Our data 
reliability assessment included reviewing relevant documentation, 
conducting interviews with IRS officials knowledgeable about the data, 
and conducting electronic testing of the data to identify obvious 
errors or outliers. See appendix I for more information on our scope 
and methodology. 

We conducted this performance audit from June 2011 to March 2013 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Background: 

Reporting Requirements for Offshore Accounts: 

U.S. taxpayers can hold offshore accounts for a number of non-tax 
reasons, including access to funds while living or working overseas, 
asset protection, investment portfolio diversification, enhanced 
investment opportunities, and to facilitate international business 
transactions. U.S. taxpayers must report whether they have offshore 
accounts on Schedule B of IRS Form 1040 and pay taxes on income from 
the offshore accounts at their individual tax rates. 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). Failure to report the existence of offshore 
accounts or pay taxes on these accounts can lead to civil and criminal 
penalties. 

U.S. financial institutions are required to submit to IRS information 
returns that report income earned by account holders.[Footnote 6] IRS 
uses the information to check whether taxpayers are reporting 
investment earnings and other income correctly. Unlike the reporting 
requirements for U.S. financial institutions, there has been no 
reporting regime for foreign financial institutions, and this lack of 
information has limited IRS's ability to ensure taxpayers were 
reporting offshore income accurately (see fig. 1). IRS has begun 
implementing provisions of the Foreign Account Tax Compliance Act 
(FATCA), which requires, beginning in 2015, U.S. financial 
institutions to withhold a portion of certain payments made to foreign 
financial institutions that have not entered into a specific agreement 
with IRS to report information on their U.S. clients.[Footnote 7] It 
is expected that IRS will use this information to identify 
noncompliant taxpayers. While IRS officials do not anticipate that 
FATCA will replace the offshore programs, they do believe that future 
programs may shift in focus to identifying promoters of offshore tax 
schemes that are not associated with the financial institutions that 
will be subject to FATCA reporting requirements. 

Figure 1: Illustration of Taxpayer and Information Reporting on 
Offshore Accounts: 

[Refer to PDF for image: illustration] 

Taxpayer: Form 1040 Schedule B: File by April 15: Taxpayers report 
interest and investment income from both U.S. and foreign accounts on 
Schedule B; 
Internal Revenue Service: IRS uses information from financial 
institutions to check for taxpayer noncompliance; 
Financial Institutions: 
U.S. financial institutions routinely provide information returns to 
IRS showing a taxpayers’annual income from some types of investments; 
Foreign financial institutions outside the jurisdiction of the U.S. 
are not subject to the same requirements to routinely provide 
information returns to IRS. In addition, foreign bank secrecy laws in 
some jurisdictions have impeded some IRS efforts to collect 
information on accounts held by U.S. taxpayers. 

Taxpayer: TD Form 90-22.1 (FBAR): File by June 30: Taxpayers with 
foreign accounts over $10,000 are required to provide additional 
information; 
Internal Revenue Service: IRS uses information from financial 
institutions to check for taxpayer noncompliance; 
Financial Institutions: 
U.S. financial institutions routinely provide information returns to 
IRS showing a taxpayers’annual income from some types of investments; 
Foreign financial institutions outside the jurisdiction of the U.S. 
are not subject to the same requirements to routinely provide 
information returns to IRS. In addition, foreign bank secrecy laws in 
some jurisdictions have impeded some IRS efforts to collect 
information on accounts held by U.S. taxpayers. 

Taxpayer: Form 8938: File by April 15: Since 2012, Form 8938 has been 
required for taxpayers with foreign assets over $50,000[A]; 
Internal Revenue Service: New requirements under FATCA[B]: IRS plans 
to check information from foreign financial institutions with taxpayer 
information from Form 8938 to identify noncompliance; 
Financial Institutions: Foreign financial institutions will generally 
provide information on offshore accounts held by U.S. taxpayers 
starting in 2015, or be subject to withholding taxes. 

Source: GAO analysis of foreign account filing requirements. 

[A] Different thresholds apply based on whether a filer files a joint 
income tax return or resides outside the United States, and whether 
asset values exceed a certain threshold at any point during the year. 
If the end of year aggregate value filing threshold is not met, a 
higher threshold applies during the year. 26 U.S.C. § 6038D; 26 C.F.R. 
§ 1.6038D-0T to 1.6038D-8T. 

[B] FATCA stands for the Foreign Account Tax Compliance Act. 

[End of figure] 

Key Features of IRS's Offshore Programs: 

IRS's offshore programs were designed to encourage taxpayers with 
undisclosed income from offshore accounts to become current with their 
tax liabilities. Although the offshore programs differed in details, 
all four followed a cycle similar to the one illustrated in figure 2. 
The offshore programs fit into IRS's larger compliance efforts, which 
are intended to both detect noncompliance and to encourage voluntary 
compliance, in part by minimizing the burden for taxpayers to 
understand their tax obligations and file tax returns every year. 

Figure 2: IRS Process for Developing Offshore Disclosure Programs: 

[Refer to PDF for image: illustration] 

Step 1: Identify a population of tax evaders from, for example, a 
whistleblower or previously data mined information. 

Step 2: Collect additional information. IRS works with DOJ to build 
criminal cases. In addition, IRS works to obtain information through 
John Doe summonses. 

Step 3: Announce Offshore Program and publicize intent to pursue 
noncompliance to encourage participation. 

Step 4: Audit to find noncompliant taxpayers, including those 
circumventing programs. 

Step 5: Data mine information collected from voluntary compliance 
programs to identify additional tax evasion. 

Source: GAO analysis of IRS information on offshore filing 
requirements and process information provide by IRS’s Offshore 
Compliance Initiative. 

[End of figure] 

Step 1: Identifying a Population of Taxpayers with Suspected Offshore 
Account Noncompliance: 

While open and intended to attract all noncompliant taxpayers with 
offshore accounts, the four offshore programs to date all started with 
IRS identifying a particular group of taxpayers suspected of having 
unreported offshore accounts. The group might be account holders at a 
particular bank or in a particular country. Sometimes IRS obtains such 
information from whistleblowers.[Footnote 8] In 2007, a whistleblower 
provided details to the U.S. government about how his employer, Swiss 
bank UBS, was actively assisting and facilitating U.S. taxpayers' 
concealment of taxable income.[Footnote 9] (See app. II for more 
information on the UBS whistleblower.) IRS may also use information 
gathered through prior offshore programs to identify other banks or 
countries where U.S. taxpayers may be hiding offshore income. 

Step 2: Identifying Some Specific Individuals from the Step 1 
Population: 

The next step is to learn the identities of some of the taxpayers 
suspected of noncompliance. One technique is to use John Doe 
summonses.[Footnote 10] In 2008, prior to the announcement of the 2009 
OVDP, a federal court granted IRS permission to serve a John Doe 
summons to UBS for information on its U.S. customers. As a result of 
the summons, and subsequent government negotiation and agreement, UBS 
turned over information on approximately 4,450 accounts held in 
Switzerland by U.S. persons. This was a partial list of all U.S. UBS 
account holders with accounts in Switzerland. In other cases, IRS has 
been able to get client lists from promoters of offshore tax evasion 
schemes. 

Step 3: Publicizing Steps 1 and 2 and Offering an Offshore Disclosure 
Program: 

In order to encourage program participation, IRS publicizes the fact 
that it knows, or soon will know, the names of some offshore account 
holders. IRS also publicizes the terms of its offshore programs, which 
offer incentives to taxpayers who voluntarily disclose their accounts 
before IRS learns about them. 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. In this report we refer to the reduced 
penalty offered as part of an offshore program as the "offshore 
penalty." In the 2009 OVDP the offshore penalty was typically 20 
percent of the highest aggregate value of the unreported offshore 
accounts between 2003 and 2008. 

Step 4: Review Case Files of Offshore Program Participants and Audit 
Nonparticipants: 

Provided that they meet certain criteria, taxpayers are accepted into 
one of IRS's offshore programs by responding to IRS questions about 
the nature of their offshore noncompliance in an application letter 
and filing amended or late tax returns and FBARs.[Footnote 11] (See 
app. III for sample application letters.) Investigators from IRS's 
Criminal Investigation division generally review applications to 
verify that taxpayers are not already under investigation, that the 
offshore income was from legal sources, and that the taxpayer has made 
a complete and truthful disclosure. Taxpayers' amended or late returns 
that are submitted as part of an offshore program are reviewed and 
certified by IRS examiners who calculate the delinquent taxes, 
interest, and penalties, and who may request additional documents and 
information from taxpayers. 

Taxpayers who did not participate in an offshore program but are known 
to IRS (perhaps because they were on the list of names IRS identified 
in Step 2) run the risk of being audited outside of an offshore 
program. These taxpayers could be subject to substantially greater 
penalties and increased risk of criminal prosecution. Since 2009, IRS 
and the Department of Justice (DOJ) have publicized more than 40 
prosecutions of UBS clients and UBS bankers. 

Step 5: Data Mining Information Collected in Step 4: 

Through data mining, or analyzing, information from offshore program 
application letters, and reviewing the case files of program 
participants and auditing nonparticipants, IRS is able to identify new 
groups of taxpayers suspected of hiding income offshore. IRS can then 
choose to continue offering offshore programs and encourage these 
newly identified groups of taxpayers, as well as all taxpayers with 
unreported offshore accounts, to disclose their accounts voluntarily, 
repeating the cycle illustrated in figure 2. For example, taxpayers 
that participated in the 2009 OVDP named other Swiss banks and 
financial advisors who had assisted them with hiding offshore income. 
As a result, IRS and DOJ took actions to compel other Swiss banks to 
name their U.S. customers. To date, some Swiss banks have announced 
that they are cooperating with U.S. government investigations. One 
Swiss bank ceased operating after it pleaded guilty to helping U.S. 
taxpayers hide income offshore and agreed to pay approximately $74 
million in fines, restitution, and civil forfeiture. IRS and DOJ are 
also pursuing other banks in Liechtenstein, Israel, and India, which 
had been named by 2009 OVDP participants. 

Terms of IRS's Offshore Programs: 

Each of IRS's four offshore programs had a slightly different 
structure, including a higher standard offshore penalty rate for each 
subsequent program, as shown in table 1. In the 2009 OVDP, the 
standard offshore penalty was 20 percent. The offshore programs offer 
participating taxpayers a lower penalty than they could have been 
subject to if IRS had discovered their offshore account outside of the 
program. According to IRS, the offshore penalty is in lieu of all 
other liabilities for tax, interest, and penalties that IRS would not 
pursue. Taxpayers that do not participate in an offshore program could 
potentially face penalties that total more than 100 percent of the 
value of their unreported offshore accounts. These penalties could 
include FBAR, accuracy-related and/or delinquency, fraud, and foreign 
information return penalties.[Footnote 12] 

Most of the offshore programs also offered taxpayers mitigated 
penalties at lower rates, generally for taxpayers with small accounts 
or accounts that were not accessed, also shown in table 1. 

Many offshore accounts were presumably open for decades, something 
that we confirmed in our review of 2009 OVDP cases, but practical 
reasons prevented IRS from auditing and collecting unpaid taxes from 
all of those years. The standard 2009 OVDP 20 percent offshore penalty 
was calculated based not on additional taxes assessed, but on the 
highest aggregate value of the offshore accounts. As a result, the 
penalty has been described by tax practitioners as "rough justice," in 
part because the amount in an account might include decades of tax-
free buildup. (See appendix IV for hypothetical examples illustrating 
tax-free build up and penalties for accounts of different ages.) 

Under the 2003, 2009, and 2011 programs, taxpayers had a specified 
period of time to join a program. The 2012 program is, at present, 
open ended. In each program, delinquent taxes and interest were 
assessed and collected for a limited number of prior years, which 
varied from four to eight tax years. Taxpayers were typically assessed 
accuracy-related and/or delinquency penalties for the delinquent taxes 
assessed in an offshore program, in addition to the offshore penalty 
described earlier. 

Table 1: Comparison of IRS's Offshore Voluntary Disclosure Programs: 

Factors that influenced participation: 
2003 Offshore Voluntary Compliance Initiative: Promoters identified 
and John Doe summons for information on taxpayers who used bank cards 
to access hidden offshore income; 
2009 Offshore Voluntary Disclosure Program: John Doe summons for UBS 
accounts in Switzerland; 
2011 Offshore Voluntary Disclosure Initiative: IRS actions against 
many foreign banks, including HSBC, which provided IRS information on 
accounts in India; 
2012 Offshore Voluntary Disclosure Program: FATCA and increased 
actions against a number of foreign financial institutions. 

Application period: 
2003 Offshore Voluntary Compliance Initiative: January 14, 2003, to 
April 15, 2003; 
2009 Offshore Voluntary Disclosure Program: March 23, 2009, to October 
15, 2009[A]; 
2011 Offshore Voluntary Disclosure Initiative: February 8, 2011, to 
September 9, 2011; 
2012 Offshore Voluntary Disclosure Program: January 9, 2012, to 
present[B]. 

Tax years for which delinquent taxes were collected: 
2003 Offshore Voluntary Compliance Initiative: 4 years (1999 to 2002); 
2009 Offshore Voluntary Disclosure Program: 6 years (2003 to 2008); 
2011 Offshore Voluntary Disclosure Initiative: 8 years (2003 to 2010); 
2012 Offshore Voluntary Disclosure Program: 8 years[C]. 

Standard offshore penalty rate[D]: 
2003 Offshore Voluntary Compliance Initiative: No offshore penalty; 
2009 Offshore Voluntary Disclosure Program: 20%; 
2011 Offshore Voluntary Disclosure Initiative: 25%; 
2012 Offshore Voluntary Disclosure Program: 27.5%. 

Mitigated offshore penalty rate: 
2003 Offshore Voluntary Compliance Initiative: No offshore penalty; 
2009 Offshore Voluntary Disclosure Program: 5% for passive account 
holders[E]. Beginning in March 2011, 2009 OVDP participants could 
receive 2011 OVDI mitigated penalties, which they were allowed to 
apply for retroactively; 
2011 Offshore Voluntary Disclosure Initiative: 12.5% for accounts 
valued less than $75,000; 
5% for passive account holders[E]; 
2012 Offshore Voluntary Disclosure Program: 12.5% for accounts valued 
less than $75,000; 5% for passive account holders.[E] 

Other penalties: 
Accuracy-related penalty (up to 20% of unpaid taxes) and/or Delinquency 
penalty (up to 25% of unpaid taxes). 

IRS reported number of disclosures: 
2003 Offshore Voluntary Compliance Initiative: 1,321; 
2009 Offshore Voluntary Disclosure Program: 15,000; 
2011 Offshore Voluntary Disclosure Initiative: 18,000; 
2012 Offshore Voluntary Disclosure Program: 5,000 to date. 

Total collected (unpaid taxes, penalties and/or fees) as reported by 
IRS: 
2003 Offshore Voluntary Compliance Initiative: $200 million; 
2009 Offshore Voluntary Disclosure Program: $4.1 billion (as of 
December 31, 2012); 
2011 Offshore Voluntary Disclosure Initiative: $1.4 billion (as 
of December 31, 2012; 
2012 Offshore Voluntary Disclosure Program: Not available. 

Source: GAO analysis of IRS offshore voluntary disclosure program 
information. 

[A] The IRS granted a one-time extension of the original September 23, 
2009, deadline for certain voluntary disclosures. Those taxpayers had 
until October 15, 2009. 

[B] The 2012 OVDP has no set deadline for taxpayers to apply. 
Additionally, IRS stated that the terms of the program could change at 
any time. For example, IRS could increase penalties associated with 
the program for all or some taxpayers or a defined class of taxpayers, 
or decide to end the program at any point. 

[C] Tax years covered are determined by the last closed tax year when 
the taxpayers apply to the program, plus the seven previous tax years. 

[D] The offshore penalty rate is applied to the highest aggregate 
account balance during the calendar years that correspond to the tax 
years covered by the program. 

[E] A 5 percent penalty rate was generally allowed if taxpayers did 
not open or cause the account to be opened, had no account use, and 
had paid all applicable U.S. taxes on funds deposited to the accounts, 
with only account earnings having escaped U.S. taxation. In later 
program years, minimal account activity was allowed, for example, to 
update address information, or to withdraw a minimal amounts of funds, 
defined as less than $1,000 in any program year for which the 
taxpayers was noncompliant. This limit did not include transfers back 
to the United States upon closing an offshore account. 

[End of table] 

Attempts to Circumvent Some of the Taxes, Interest, and Penalties that 
Otherwise Would Be Owed in Offshore Programs: 

Despite the significant risks of not coming forward through one of 
IRS's offshore programs, some taxpayers decide to do nothing and 
remain noncompliant. Other taxpayers have attempted to disclose their 
offshore accounts without paying all the delinquent taxes, interest, 
and penalties required by the programs. In a quiet disclosure, 
taxpayers file amended tax returns for all or some of the tax years 
covered by an offshore program, and report the income from the 
previously unreported accounts. The taxpayers would generally pay 
interest and either accuracy-related or delinquency penalties on the 
newly reported income, but would avoid the higher offshore penalty. 
[Footnote 13] At the same time, taxpayers attempting quiet disclosures 
would file late FBARs, if they had not previously filed FBARs, or 
amended FBARs, if they had, to disclose the offshore accounts that 
they had not previously reported. 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. 
These taxpayers would also likely disclose the existence of the 
accounts by filing FBARs for the current calendar year. This filing 
would appear similar to the opening of a new account. Such a taxpayer 
would avoid paying any delinquent taxes, interest, or penalties, 
unless audited. As described earlier, taxpayers who are caught 
disclosing offshore accounts outside of one of IRS's offshore programs 
risk steeper penalties and criminal prosecution, based on the facts 
and circumstances of their cases. 

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 2009 OVDP cases, we 
estimate based on penalty data that the bottom 10 percent of the 
participants had account balances of less than $79,000 and the top 10 
percent had balances over $4 million, as shown in table 2.[Footnote 
14] The amount of offshore penalties also varied widely, which 
reflected the range of account balances. Some taxpayers were assessed 
an offshore penalty of a few thousand dollars while others were 
assessed several million dollars. The average offshore penalty 
assessed was about $376,000 while the median was approximately 
$108,000. 

Table 2: Selected Penalty Information for 2009 OVDP Individual 
Taxpayers with Closed Cases as of November 29, 2012: 

Offshore account(s) balance[A]: 
Mean: $1,923,310; 
10th percentile: $78,315; 
25th percentile: $190,365; 
Median: $568,735; 
75th percentile: $1,595,805; 
90th percentile: $4,054,505. 

2009 OVDP penalty: 
Mean: 375,879; 
10th percentile: $13,320; 
25th percentile: $35,670; 
Median: $107,949; 
75th percentile: $310,476; 
90th percentile: $793,166. 

Additional tax owed, tax years 2003-2008: 
Mean: $97,681; 
10th percentile: $103; 
25th percentile: $1,661; 
Median: $12,748; 
75th percentile: $60,449; 
90th percentile: $190,399. 

Interest, tax years 2003-2008: 
Mean: $29,645; 
10th percentile: $52; 
25th percentile: $482; 
Median: $3,486; 
75th percentile: $17,398; 
90th percentile: $57,129. 

Other penalties[B]: 
Mean: $24,014; 
10th percentile: $84; 
25th percentile: $605; 
Median: $3,457; 
75th percentile: $14,290; 
90th percentile: $45,163. 

Total penalties, interest and taxes; 
Mean: $433,840; 
10th percentile: $2,318; 
25th percentile: $22,120; 
Median: $95,982; 
75th percentile: $330,185; 
90th percentile: $923,300. 

Source: GAO analysis of IRS Enforcement Revenue Information System 
(ERIS) and Individual Returns Transaction File. 

Note: Totals may not equal sum of components due to variation in the 
component populations. 

[A] 2009 OVDP offshore account balance is an estimated number based on 
penalty amounts. It represents the highest aggregate balance of all 
offshore accounts between 2003 and 2008. 

[B] Other penalties primarily included accuracy related penalties and 
delinquency penalties. 

[End of table] 

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). See table 3. 

Table 3: Type and Amount of Offshore Penalties for 2009 OVDP Closed 
Cases (Individual Taxpayers) as of November 29, 2012: 

20 percent penalty: 
Percent of closed cases with penalties: 96%; 
Total penalty dollars: $2.786 billion; 
Median penalty amount: $116,393. 

12.5 percent penalty: 
Percent of closed cases with penalties: less than 1%; 
Total penalty dollars: $0.002 billion; 
Median penalty amount: $5,831. 

5 percent penalty: 
Percent of closed cases with penalties: 4%; 
Total penalty dollars: $0.021 billion; 
Median penalty amount: $18,478. 

All penalty rates: 
Total penalty dollars: $2.810 billion; 
Median penalty amount: $107,949. 

Source: GAO analysis of IRS ERIS. 

Note: Total for penalty dollars may not equal sum of components due to 
rounding. 

[End of table] 

Fewer than 5 percent of 2009 OVDP participants received one of the 
mitigated offshore penalties, 12.5 percent or 5 percent, also shown in 
table 3. (See sidebars for representative examples of mitigated 
penalty cases.) 

Sidebar: 

5 Percent Mitigated Penalty Case: 

A taxpayer and his wife inherited offshore accounts from the wife's 
parents who were not U.S. citizens or residents. The inherited funds 
in the accounts were from the parents' foreign savings and not from 
U.S. sources. The taxpayers did not make any deposits or withdrawals 
from the accounts after inheriting them. The taxpayers paid foreign 
taxes to the country where the accounts were located, but did not pay 
U.S. taxes on the income for some of the years covered by the offshore 
program. The taxpayers did not file a FBAR and claimed they did not 
know about the FBAR filing requirement. 

12.5 Percent Mitigated Penalty Case: 

A U.S. citizen, married to a non-U.S. citizen, and living overseas for 
an extended period of time, maintained accounts in the taxpayer's 
country of residence for local banking needs. In aggregate, the 
accounts were less than $75,000. The taxpayer had not filed U.S. tax 
returns for a number of the tax years covered by the offshore program. 
By participating in the 2009 OVDP, the taxpayer paid delinquent taxes, 
interest, and delinquency penalties, in addition to the mitigated 
offshore penalty. 

[End of sidebar] 

Consistent with IRS's enforcements efforts and the design of the 2009 
OVDP, we found that the population of participants was more likely to 
report offshore accounts in Switzerland than the average foreign 
account holder who filed an FBAR (see fig. 3). Taxpayers with closed 
cases also had higher incomes than the average taxpayer, were older, 
and were more likely to use the married filing jointly status. (See 
appendix VI.) 

Figure 3: Top Ten Locations of Offshore Accounts on 2008 FBARs Filed 
by 2009 OVDP Participants Compared to All 2008 Individual FBAR Filers: 

[Refer to PDF for image: horizontal bar graph] 

Bank location: Canada; 
2009 OVDP individual participants filing 2008 FBARs: 4.31%; 
All individual taxpayers filing 2008 FBAR: 17.08%. 

Bank location: China; 
2009 OVDP individual participants filing 2008 FBARs: 3.06%; 
All individual taxpayers filing 2008 FBAR: 2.81%. 

Bank location: France; 
2009 OVDP individual participants filing 2008 FBARs: 4.1%; 
All individual taxpayers filing 2008 FBAR: 4.4%. 

Bank location: Germany; 
2009 OVDP individual participants filing 2008 FBARs: 3.76%; 
All individual taxpayers filing 2008 FBAR: 5.82%. 

Bank location: Hong Kong; 
2009 OVDP individual participants filing 2008 FBARs: 2.81%; 
All individual taxpayers filing 2008 FBAR: 2.78%. 

Bank location: India; 
2009 OVDP individual participants filing 2008 FBARs: 2.37%; 
All individual taxpayers filing 2008 FBAR: 3%. 

Bank location: Israel; 
2009 OVDP individual participants filing 2008 FBARs: 3.96%; 
All individual taxpayers filing 2008 FBAR: 1.76%. 

Bank location: Switzerland; 
2009 OVDP individual participants filing 2008 FBARs: 42.11%; 
All individual taxpayers filing 2008 FBAR: 7.44%. 

Bank location: Taiwan; 
2009 OVDP individual participants filing 2008 FBARs: 2.38%; 
All individual taxpayers filing 2008 FBAR: 0.94%. 

Bank location: United Kingdom; 
2009 OVDP individual participants filing 2008 FBARs: 8.21%; 
All individual taxpayers filing 2008 FBAR: 14.4%. 

Source: GAO analysis of FinCEN data. 

Note: OVDP stands for Offshore Voluntary Disclosure Program and FBAR 
stands for Report of Foreign Bank and Financial Accounts. 

[End of figure] 

Results from Sample of Large Penalty Cases: 

Sidebar: 

Long-term Expatriates: 
A taxpayer and his wife (both U.S. citizens) had been living and 
working in a foreign country since the 1980s. When applying to the 
2009 OVDP, they reported several foreign financial accounts valued at 
over a million dollars; some were opened for their personal local 
banking needs, while others were related to the couple's businesses. 
The taxpayers had reported some, but not all, of their income from 
these accounts on their tax returns, and they had not filed FBARs. 

[End of sidebar] 

About half of the revenues collected through the 2009 OVDP, as of 
March 30, 2012, came from 378 cases where taxpayers received offshore 
penalties of $1 million or greater, meaning they had account balances 
of $5 million or greater. This group, which we refer to as "large 
penalty cases", accounted for about 6 percent of the closed 2009 OVDP 
cases, but the penalties they received amounted to 49 percent of the 
total $1.9 billion in offshore penalties that had been assessed by IRS 
at that time.[Footnote 15] Given this group's high share of penalties 
assessed, we selected a random sample of 30 of them for further 
examination and to obtain a better understanding taxpayers' 
noncompliance. 

More than Half of Taxpayers Receiving Large Penalties Had Accounts at 
Swiss Bank UBS and Some First Transferred Funds from UBS to Other 
Swiss Banks before Entering the 2009 OVDP: 

Sidebar: 

Political/War Refugees: 
A taxpayer and her late husband immigrated to the United States in the 
1980s. Prior to a revolution in their native country, the taxpayers 
opened bank accounts in Europe to safeguard the family's business 
assets from potential seizure. The taxpayer applied to the 2009 OVDP 
after her husband's death. 

[End of sidebar] 

For large penalty cases, we estimate that more than 50 percent of 
taxpayers had one or more bank accounts with Swiss bank UBS.[Footnote 
16] (See appendix VII for detailed information on the location of 
these taxpayer's offshore accounts, including country and bank names.) 
Some of these taxpayers with UBS accounts transferred funds from Swiss 
bank UBS in 2008--the time when the U.S. government was actively 
trying to compel UBS to name its U.S. account holders. The funds were 
often transferred to other, smaller Swiss banks that generally did not 
operate in the United States. A few taxpayers claimed that they 
transferred funds at the recommendation of their UBS financial 
advisors. Taxpayers transferring funds to other banks may have been 
attempting to keep their offshore accounts hidden before deciding to 
participate in the 2009 OVDP. 

Taxpayers Receiving Large Penalties Disclosed a Variety of Reasons for 
Having Offshore Accounts: 

Many taxpayers in the 30 large penalty cases that we reviewed had 
resided outside the United States for extended periods of time--either 
as U.S. citizens or prior to obtaining U.S. citizenship.[Footnote 17] 
Many taxpayers who disclosed extended periods of non-U.S. residency 
reported that they had opened their offshore accounts with income 
earned outside of the United States. A few of these taxpayers had been 
living and working overseas as U.S. citizens for decades. Others 
within this group opened accounts before immigrating to the United 
States. Although some taxpayers in these cases became U.S. residents 
decades ago, they maintained their offshore accounts and did not 
disclose them on tax returns or FBARs. Some taxpayers reported opening 
bank accounts in Switzerland as a means of protecting family assets 
during periods of war or instability in their native country. Further, 
a few taxpayers who immigrated to the United States reported that they 
had been unaware of their FBAR reporting requirements, that they had 
to state that they had foreign accounts on the Form 1040, Schedule B, 
or that the United States taxes the worldwide income of its residents, 
including overseas investment income. (See sidebars for representative 
examples from our case file reviews.) 

Sidebar: 

Moving U.S. Funds Offshore: 
A taxpayer and his wife first opened financial accounts in a Caribbean 
country in the early 1990s to protect their assets from potential 
professional services claims (malpractice) in the United States. They 
reported that Swiss bankers met them in the United States and helped 
them open these accounts. Several years later, the same bankers met 
them again in the United States and recommended they close the 
Caribbean accounts and transfer the funds to Switzerland. In 2008, the 
bankers recommended that the taxpayers close their accounts at one 
Swiss bank and transfer the funds to other Swiss banks, which they did 
before ultimately applying to the 2009 OVDP. 

[End of sidebar] 

Sidebar: 

Use of Sham Foreign Entities: 
A taxpayer and her siblings inherited offshore accounts in Switzerland 
from their father. The family's Swiss bank accounts were first opened 
by another family member decades ago before the family immigrated to 
the United States. Over time, the family continued to make 
contributions to the accounts from family businesses in the United 
States and overseas. To transfer money from Switzerland to the United 
States, the family used a series of foreign accounts and sham foreign 
entities to disguise the flow of funds. The transfer route for the 
family's funds typically went from banks in Switzerland through banks 
in other countries associated with the various foreign entities, 
before eventually being deposited in the United States and split among 
the taxpayer and other family members. 

[End of sidebar] 

Taxpayers in some of the cases that we reviewed disclosed that the 
original source of funds for their offshore accounts came from post-
tax U.S. source income. A few of these taxpayers cited family 
histories or personal fears about the safety of U.S. banks as their 
reasons for moving savings offshore. Others reasons cited included the 
need to protect or shelter assets from possible U.S. lawsuits. 

We estimate that 47 percent of taxpayers receiving large penalties 
inherited offshore accounts from a parent, spouse, or other relative--
some of whom were not U.S. citizens or residents.[Footnote 18] In many 
instances, taxpayers reported inherited accounts that were jointly 
owned or managed by extended family members, such as siblings and 
cousins, who also applied to the 2009 OVDP and sometimes split the 
penalties. Regardless of how taxpayers in the large penalty cases came 
to own offshore accounts, many maintained but did not disclose 
offshore account balances of several million dollars for many years. 
Some of these taxpayers did not pay U.S. taxes on income earned from 
these accounts for decades. 

Sidebar: 

Multiple Family Members: 
A taxpayer was one of several family members to participate in the 
2009 OVDP. Together they had inherited foreign financial accounts from 
older-generation family members, who owned and operated a family 
business with operations in the United States and several European 
countries. Their family had set up family foundations, trusts, and 
corporations to manage the family finances decades ago. These entities 
were located in offshore tax havens, but the entities' bank accounts 
remained at banks in Switzerland. The younger-generation family 
members, including the taxpayers, continued to modify the ownership 
structures and create new investments, after inheriting the accounts. 

Inheritance from Non-U.S. Person: 
A taxpayer reported that she had received monetary gifts from a parent 
who was not a U.S. citizen or resident. The taxpayer's parent had 
opened accounts in the taxpayer's name at Swiss banks decades ago. At 
the time, the taxpayer was not yet a U.S. citizen. The taxpayer 
reported that her parent made regular deposits to the Swiss accounts 
over a long period, but that she, herself, did not access the account. 
After the death of her parent, she became the sole account holder, but 
still did not report the account for tax purposes. 

[End of sidebar] 

We estimate that 40 percent of 2009 OVDP participants receiving large 
penalties used complex arrangements to indirectly own or manage their 
offshore accounts.[Footnote 19] These arrangements involved the use of 
foreign corporations, foundations, trusts, and other entities in 
jurisdictions that have been designated as offshore tax havens and 
financial privacy jurisdictions, some of which were recommended by the 
taxpayers' foreign financial advisors.[Footnote 20] In some cases, the 
entities were "sham" entities--i.e., entities created to conceal 
ownership from U.S. tax authorities--which participants in some case 
files that we reviewed used to conceal the ownership of accounts or 
disguise the repatriation of offshore funds back to the United States. 
Another complex arrangement present in several large penalty cases was 
passive foreign investment companies (PFIC). A PFIC is a type of 
mutual fund or investment company held outside of the United States. 
[Footnote 21] Some foreign bank accounts disclosed through OVDP were 
in the form of simple interest bearing accounts, but others were 
foreign mutual funds that would be treated as PFICs under the Internal 
Revenue Code. PFICs may, in some cases, receive less favorable tax 
treatment than U.S. entities holding similar assets or earning similar 
income.[Footnote 22] Taxpayers who did not disclose PFICs may not have 
paid the additional taxes on such investments. In many cases, a number 
of previously unreported investment entities were disclosed through 
the 2009 OVDP, and IRS decided to accept an alternative tax on all 
their associated PFIC gains--20 percent of the gain--potentially a 
much lower tax rate than would otherwise have been available to those 
taxpayers. 

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.[Footnote 23] We found that IRS collected the 
names of offshore financial institutions, financial advisors, bankers, 
attorneys, and other promoters from the 2009 OVDP that were involved 
in hiding U.S. taxpayers' offshore income, and used the names to (1) 
identify patterns of noncompliance, (2) encourage banks and other 
promoters to cooperate with IRS and provide the names of U.S. 
taxpayers hiding income overseas, and (3) build cases for John Doe 
summonses. 

IRS officials from the Offshore Compliance Initiative office told us 
that publicity from the John Doe summonses has been the most effective 
tool to increase participation in its offshore programs. They based 
their conclusion on the correlation between country specific or bank 
specific John Doe summonses and the locations of 2009 OVDP 
participants' accounts. Our case file analysis discussed previously in 
this report supports IRS's conclusion. 

However, IRS officials also determined that data mining the 2009 OVDP 
applications would not provide IRS with all of the useful information 
it could get from participants. For taxpayers accepted into the 
program, responses on the 2009 OVDP applications varied widely in 
degree of detail, which we confirmed in our case file review. For 
example, some application letters included very detailed account 
information, such as the original source of funds, bank name, banker 
name, and country name, while other case files we reviewed did not 
contain any optional letter like the one suggested by IRS in its 2009 
OVDP Questions & Answers. As a consequence, IRS sent surveys to 2009 
OVDP participants to obtain more details about the offshore accounts. 
The survey included detailed questions about the taxpayer's financial 
institutions, bankers, advisors, attorneys, or other promoters' 
involvement in hiding offshore income. IRS program officials stated 
that the additional information they received from the surveys was 
useful and that they were using it, along with various analyses of 
voluntary disclosures, to identify particular banks, promoters, 
professionals, and others who promote, facilitate, or enable U.S. 
taxpayers in avoiding or evading payment of required U.S. taxes 
through the use of offshore accounts. According to IRS, these analyses 
have also been used to identify the foreign countries where the 
offshore accounts were maintained as well as the schemes being used 
and offshore structures. 

Based on data that IRS collected from mining the 2009 OVDP case files 
and the survey, IRS: 

* obtained information on offshore accounts held by U.S. taxpayers at 
HSBC (India); 

* continued investigations of additional foreign financial 
institutions in Switzerland, Asia, and the Caribbean; 

* built cases for additional John Doe summonses, should they become 
necessary; 

* expanded its investigations of non-bank entities, such as merchant 
accounts, which are a type of bank account that allows a business to 
accept payments by payment cards, such as credit or debit cards; 
[Footnote 24] and: 

* improved subsequent offshore programs. 

One lesson that IRS learned from the 2009 OVDP was that the 
applications sometimes did not contain enough information to allow IRS 
to understand the nature of the noncompliance. To obtain better 
information going forward, and as a condition of being accepted into 
the 2011 and 2012 programs, IRS required applicants to submit 
additional documents related to their offshore accounts.[Footnote 25] 
This included additional account information about the original source 
of funds. In addition, applicants to the 2011 and 2012 programs that 
had offshore accounts with an aggregate balance of $1 million or more 
were required to submit a separate statement for each foreign 
financial institution. These applicants were also required to submit a 
separate statement for each foreign account or asset listed in their 
voluntary disclosure. (See app. III for sample 2009 and 2012 
application letters and, the new required attachment to the 2012 
application letter.) IRS officials from the Offshore Compliance 
Initiative office told us that they have begun to use data from these 
additional submissions to improve offshore compliance. 

Based in part on its experience with the 2009 OVDP, IRS introduced 
streamlined offshore program filing procedures. These were, in part, 
intended to provide a less burdensome process for taxpayers with 
unreported offshore accounts that were small. As shown earlier in 
table 2, for the 10,439 2009 OVDP cases that we had data for, the 
account value for the 10th percentile was about $78,000. According to 
IRS, some of these taxpayers with smaller accounts, and thus 
relatively low unpaid-tax obligations, were U.S. residents residing 
overseas, including dual citizens, who most likely did not owe 
substantial amounts of unpaid taxes, and who indicated to IRS that 
they did not understand their filing requirements. The standard 
offshore penalty for such taxpayers would likely be disproportionately 
high. The streamlined filing procedures that began in September 2012 
allow taxpayers with "low compliance risk" to become current with 
their offshore tax obligations without facing offshore penalties or 
additional enforcement action. IRS defined "low compliance risk" as 
taxpayers with simple tax returns, owing less than $1,500 in taxes for 
each of the years covered by the streamlined procedures.[Footnote 26] 

Despite the Successes of IRS's Overall Strategy, IRS Might Benefit 
from Additional Information to Better Target Outreach and Education: 

IRS efforts to publicize the 2009 OVDP included notices published in 
seven languages and outreach to professional tax practitioners. IRS 
officials from the Offshore Compliance Initiative office told us that 
they had not formally evaluated the success of these outreach efforts. 
We recently reported concerns about the complexity of foreign account 
reporting requirements, and that tax practitioners and taxpayers are 
confused about what foreign account information should be reported and 
how.[Footnote 27] 

The offshore programs are part of IRS's larger compliance efforts, 
which are intended to both detect noncompliance and to encourage 
voluntary compliance, in part by minimizing the burden for taxpayers 
to understand their tax obligations and file tax returns every year. 
Obtaining information on how taxpayers found out about IRS's offshore 
voluntary disclosure programs could help IRS better identify 
populations that could benefit from additional taxpayer education and 
outreach and potentially improve voluntary compliance by taxpayers 
with new offshore accounts. Such information could also help IRS 
evaluate the success of its current outreach efforts. IRS's 2009 OVDP 
application, however, did not contain a question on how the taxpayer 
became aware of the program. IRS made changes to the applications for 
subsequent programs, as described earlier, but did not consider adding 
questions on how participants became aware of the program. IRS 
officials from the Offshore Compliance Initiative office told us that 
this information would be useful in terms of allocating future 
resources, and that they would be open to considering a question on 
how taxpayers found out about the offshore programs. Presently, IRS 
has not decided to include this question in the 2012 program 
application. 

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. We found they had often opened banks accounts in 
their home country prior to immigrating to the United States. IRS 
officials from the Offshore Compliance Initiative office stated that 
although there are several FBAR education programs, none are 
specifically targeted at new immigrants. Furthermore, these IRS 
officials were unaware of any IRS work with other federal agencies 
such as the State Department or the Department of Homeland Security to 
educate recent immigrants about their foreign account filing 
requirements. These officials stated that one of the challenges that 
they face in their office, which is part of IRS's Large Business and 
International Division, is that taxpayer education and outreach is the 
responsibility of IRS's Wage and Investment Division and that issues 
concerning FBARs fall under IRS's Small Business/Self-Employed 
Division. 

IRS officials from the Offshore Compliance Initiative office agree 
that more could be done to improve taxpayer education and outreach 
about offshore reporting requirements. They, like us, recognize that 
multiple outreach efforts could help to draw additional taxpayers into 
the offshore programs, and that data mining information from the 
program applications can help identify these groups. 

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. 
IRS's offshore compliance enforcement efforts, including the offshore 
programs, deter taxpayers with noncompliance related to current 
offshore accounts, or offshore accounts that might be opened in the 
future. If taxpayers are able to quietly disclose and pay fewer 
penalties than they would have in an offshore program, the incentive 
for other noncompliant taxpayers to participate in a program is 
reduced. When quiet disclosures remain undetected, they also result in 
lost revenue for the government. Further, if quiet disclosures remain 
undetected, then IRS will not have information on the characteristics 
of these taxpayers and their accounts--characteristics such as bank 
names, country names, and promoter names--used to build cases against 
others. 

IRS May Not Be Detecting Some Quiet Disclosures: 

We identified 10,595 potential quiet disclosures, a number much higher 
than the potential quiet disclosures identified by IRS.[Footnote 28] 
In a series of Questions & Answers that IRS first released on February 
8, 2011 to announce the 2011 offshore program, IRS reported that it 
had identified, and will continue to identify, taxpayers attempting 
quiet disclosures.[Footnote 29] In the Questions & Answers, IRS stated 
that it would be closely reviewing amended tax returns to determine 
whether enforcement action is appropriate. (See sidebar for one 
example of a quiet disclosure being detected.[Footnote 30]) 

Sidebar: 

Quiet Disclosure Detected: 
According to the criminal information and plea agreement, a taxpayer 
held an account at HSBC Bank Bermuda. With the assistance of a 
business partner, the taxpayer arranged to have investment income in 
the amount of $297,816 wired to his business partner's secret account 
at UBS in Switzerland. From there, the taxpayer's share of the 
investment ($99,273) was transferred to his HSBC Bank Bermuda account. 
The taxpayer did not report this taxable income, or the interest 
income that accrued in the account, thereby avoiding $40,624 in taxes. 
Following the widespread media coverage of UBS's disclosure of account 
records to IRS, the taxpayer made a quiet disclosure by preparing and 
filing FBARs and amended Forms 1040 for tax year 2003 to tax year 
2008, in which he reported the existence of the previously undeclared 
account. As part of the plea agreement, the taxpayer agreed to pay an 
FBAR penalty of $76,283, which was 50 percent of the high balance in 
the account. The taxpayer also faces up to 5 years in prison and a
$250,000 fine. 

[End of sidebar] 

IRS officials told us that the Offshore Compliance Initiative office 
tested several different methodologies to identify quiet disclosures. 
First, IRS looked at amended returns during tax year 2003 to tax year 
2008, the period covered by the 2009 OVDP, and removed any non-
offshore related adjustments, such as filings status changes and 
additional exemptions. IRS also looked at amended returns with 
increased tax assessments over an established threshold during tax 
year 2003 to tax year 2010. 

The effectiveness of a third effort was questioned by IRS. In this 
effort IRS compared taxpayers with a history of filing FBARs in non-
secrecy jurisdictions between tax year 2003 and tax year 2008 who 
filed delinquent FBARs processed in 2009 involving a secrecy 
jurisdiction along with an amended return.[Footnote 31] 

In 2012, a fourth effort, which was not designed to detect quiet 
disclosures, but to reroute misaddressed amended returns sent in by 
participants in the 2011 offshore program, was the most successful 
effort to find them. 

Together, these four efforts led to the review of several thousand tax 
returns. Of those, several hundred returns were identified as quiet 
disclosures. An IRS official told us that the tax returns that were 
identified as part of a quiet disclosure will be examined and that 
cases already examined had penalties assessed. Because they were quiet 
disclosures, the official said the taxpayers did not receive the 
reduced offshore penalty. 

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. Unlike IRS, we looked at all taxpayers who, for the tax 
years covered by the 2009 OVDP: 

* filed amended or late returns, and: 

* filed amended or late FBARs. 

We then excluded 2009 OVDP participants from this population. While 
only an IRS examination can determine whether a potential quiet 
disclosure is an actual quiet disclosure, the 10,595 taxpayers that we 
identified have an unlikely combination of characteristics that could 
indicate that taxpayers are quietly disclosing. IRS agreed with our 
methodology as reasonable and appropriate. (See appendix I for 
additional details about our methodology and appendix VIII for a full 
breakout of our results.) 

Although any of the 10,595 potential quiet disclosures could be actual 
quiet disclosures, certain subpopulations raised more questions. 
First, we found 3,386 taxpayers that filed amended or late returns, 
and filed amended or late FBARs for multiple years. Second, we found 
that 94 of these taxpayers met the same criteria for all six tax years 
covered by the 2009 OVDP. 

IRS officials from the Offshore Compliance Initiative office told us 
that they had no additional work planned to identify potential quiet 
disclosures and had not yet decided to broaden the methodologies that 
they had tested, but they expressed strong interest in researching our 
methodology to identify taxpayers attempting quiet disclosures. We 
recognize that there are additional costs to using a methodology such 
as the one we used, but IRS has already committed resources to 
identifying quiet disclosures. Moreover, without rigorously and 
systematically searching for potential quiet disclosures, IRS does not 
have reasonable assurance that it is controlling such disclosures and 
collecting the delinquent taxes, interest, and penalties due. 
Exploring different methodologies that include a systematic evaluation 
of amended returns or late filed returns, along with amended or late 
filed FBARs, without too narrowly restricting either the amended 
return or the FBAR populations, and implementing the best option could 
provide this assurance. 

Increases in Taxpayers Reporting Offshore Accounts May Also Indicate 
Attempts to Circumvent Some Taxes, Interest, and Penalties that Would 
Otherwise be Owed: 

Data from IRS's SOI division and from FinCEN show that the number of 
taxpayers reporting offshore accounts on Form 1040, Schedule B and the 
number of taxpayers filing FBARs has increased significantly in recent 
years. 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. From tax year 2003 through tax year 2007, only 
about 1 percent of all taxpayers filing Form 1040, Schedule B checked 
a "yes" box in response to the question asking if they owned or 
controlled a foreign financial account, but that share increased to 
more than 2.5 percent by tax year 2010. Furthermore, FinCEN has 
reported that the number of FBARs filed more than doubled, as shown in 
figure 4. Both the increase in the number of foreign accounts reported 
on Form 1040, Schedule B and the increase in FBAR filings are 
significantly larger than the approximately 39,000 taxpayers that came 
forward in one of IRS's offshore programs. 

There could be legitimate reasons for these trends. For example, 
taxpayers could be reporting new offshore accounts or taxpayers who 
had always reported income from offshore accounts on their tax returns 
could be filing FBARs and reporting the accounts on Form 1040, 
Schedule B for the first time. This could be an indication of more 
taxpayers coming into compliance as a result of IRS's efforts to 
combat offshore tax evasion. 

Figure 4: Taxpayers Reporting Foreign Financial Accounts: 

[Refer to PDF for image: 2 combined vertical bar and lines graphs] 

Form 1040 Schedule B Line 7a by Tax Year: 

Tax year: 2003; 
Number of Schedule B's Reporting Foreign Accounts: 243,296; 
Percentage of all Schedule B's Reporting Foreign Accounts: 1.1%. 

Tax year: 2004; 
Number of Schedule B's Reporting Foreign Accounts: 235,145; 
Percentage of all Schedule B's Reporting Foreign Accounts: 1.1%. 

Tax year: 2005; 
Number of Schedule B's Reporting Foreign Accounts: 254,295; 
Percentage of all Schedule B's Reporting Foreign Accounts: 1.1%. 

Tax year: 2006; 
Number of Schedule B's Reporting Foreign Accounts: 268,803; 
Percentage of all Schedule B's Reporting Foreign Accounts: 1%. 

Tax year: 2007; 
Number of Schedule B's Reporting Foreign Accounts: 281,349; 
Percentage of all Schedule B's Reporting Foreign Accounts: 1%. 

Tax year: 2008; 
Number of Schedule B's Reporting Foreign Accounts: 364,998; 
Percentage of all Schedule B's Reporting Foreign Accounts: 1.4%. 

Tax year: 2009; 
Number of Schedule B's Reporting Foreign Accounts: 422,364; 
Percentage of all Schedule B's Reporting Foreign Accounts: 1.9%. 

Tax year: 2010; 
Number of Schedule B's Reporting Foreign Accounts: 515,635; 
Percentage of all Schedule B's Reporting Foreign Accounts: 2.7%. 

Source: GAO analysis of IRS Estimated Data Line Counts Individual 
Income Tax Returns for tax years 2003 through 2010. 

Report of Foreign Financial Accounts (FBARs) Filed by Fiscal Year: 

Fiscal year: 2003; 
Number of FBARs: 199,738. 

Fiscal year: 2004; 
Number of FBARs: 218,667. 

Fiscal year: 2005; 
Number of FBARs: 283,895. 

Fiscal year: 2006; 
Number of FBARs: 287,469. 

Fiscal year: 2007; 
Number of FBARs: 320,937. 

Fiscal year: 2008; 
Number of FBARs: 344,967. 

Fiscal year: 2009; 
Number of FBARs: 276,386. 

Fiscal year: 2010; 
Number of FBARs: 594,488. 

Fiscal year: 2011; 
Number of FBARs: 618,134. 

Source: GAO analysis of FinCEN annual reports. 

Note: IRS Form 1040, Schedule B, Line 7a includes a yes/no question 
asking taxpayers if, at any time during the tax year, they had an 
interest in or a signature or other authority over a financial account 
in a foreign country, such as a bank account, securities account, or 
other financial account. The figure contains IRS estimates of the 
number of forms in which a taxpayer answered "yes" to this question. 

Under the Bank Secrecy Act, U.S. residents or citizens with a 
financial interest or signature authority over one or more foreign 
financial accounts with a total of more than $10,000 are required to 
annually file form TD F 90-22.1 Report of Foreign Bank and Financial 
Accounts (FBAR) with Treasury. The FBAR must be filed for the calendar 
year by June 30 of the following year. The figures above are the 
number of FBARs filed during a fiscal year as reported in FinCEN 
annual reports. 

[End of figure] 

However, such a sharp increase in foreign account reporting amidst the 
global economic recession and the publicity surrounding IRS's offshore 
programs raises the question whether some of these taxpayers may have 
attempted to circumvent some of the taxes, interest, and penalties 
that would otherwise be owed in the offshore programs. Unlike 
taxpayers attempting a quiet disclosure, who would still pay taxes 
plus interest on previously unreported income covered by the programs, 
and possibly an accuracy-related or delinquency penalty, these 
taxpayers would only be paying taxes on the offshore income earned for 
the year reported.[Footnote 32] 

An IRS official from the Offshore Compliance Initiative office told us 
that although the office has coordinated with IRS's Planning, 
Analysis, Inventory, and Research (PAIR) office, they had not 
discussed Form 1040, Schedule B or FBAR filing trends, and that he was 
not aware of the sharp increase. As of January 2013, no projects were 
planned to research Form 1040, Schedule B filing trends. However, the 
Offshore Compliance Initiative office has asked PAIR to determine 
whether taxpayers who reported their offshore income properly, but had 
not filed FBARs, recently started filing delinquent FBARs, as directed 
by the 2009 OVDP instructions.[Footnote 33] This effort may not 
capture first time FBAR filers who are reporting existing offshore 
accounts as new. 

Because the increase in recent years in Form 1040, Schedule B and FBAR 
reporting of foreign accounts is measured in the hundreds of 
thousands, we recognize that it may be too costly for IRS to audit all 
of those filings. A less costly approach could involve, for example, 
IRS drawing a random sample of those cases and auditing them to 
understand whether taxpayers are trying to circumvent some of the 
taxes, interest, and penalties that would otherwise be owed in the 
offshore programs. One of the things that IRS could look for in such 
an audit is the date that the offshore account was opened. Such a 
sample could provide an estimate of the magnitude of any problem. As 
was the case with quiet disclosures, without such information, it will 
be difficult for IRS to provide reasonable assurance that taxpayers 
are not reporting, for the first time, offshore accounts that had been 
open for years to avoid paying delinquent taxes, interest, and 
penalties. 

Conclusions: 

Despite challenges in detecting offshore accounts, IRS's offshore 
programs have been effective in compelling taxpayers to disclose their 
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. It is unclear how many additional U.S. taxpayers have 
undeclared foreign accounts and how much unreported income is 
associated with those accounts. However, the number of quiet 
disclosures IRS was able to find (some by accident), the number of 
potential quiet disclosures we identified, and the sharp upswing in 
Form 1040, Schedule B and FBAR filings all suggest that the amount of 
revenue to be collected from previously undisclosed offshore accounts 
could be significant. 

We found two key issues that, if addressed, could make IRS's offshore 
programs even more successful. 

* IRS has not used program information to identify populations of 
taxpayers that would benefit from education and outreach regarding 
their offshore tax reporting obligations. Such information could 
promote voluntary compliance and reduce the need for enforcement 
actions. Additionally, IRS does not obtain information on how 
taxpayers learned about offshore programs. Without this information, 
IRS cannot fully evaluate its efforts to promote taxpayer 
participation in offshore programs. 

* IRS may have missed taxpayers attempting to circumvent some of the 
taxes, interest, and penalties that would otherwise be owed in its 
offshore programs. Our methodology to identify potential quiet 
disclosures found many more potential disclosures than IRS detected. 
IRS may also have missed other attempts at circumvention by not 
researching the upward trends of taxpayers reporting offshore accounts 
for the first time. While there would be costs to such efforts, the 
amount already collected by the offshore programs suggests that 
considerable additional revenue gains might be possible. By 
identifying taxpayers attempting to circumvent some of the taxes, 
interest, and penalties that would otherwise be owed in its offshore 
programs, and taking appropriate action, IRS could potentially 
increase revenues, bolster the overall fairness of the program, and 
have a more informed basis for improving voluntary compliance. 

Recommendations for Executive Action: 

We recommend that the Acting Commissioner of Internal Revenue take the 
following four actions: 

* Use data gained from offshore programs to identify and educate 
populations of taxpayers that might not be aware of their tax 
obligations related to offshore income and FBAR filing requirements. 

* Obtain information that can help IRS test offshore program promotion 
strategies and identify new ones by adding a question to current and 
future programs to determine how participants found out about the 
program. 

* 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. 

* Conduct an analysis designed to measure the extent that taxpayers 
are reporting existing foreign accounts on the Form 1040, Schedule B 
or on FBARs for the first time and circumventing some of the taxes, 
interest, and penalties that would otherwise be owed, and take 
appropriate action based on the analysis. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Acting Commissioner of 
Internal Revenue for comment. In written comments, reproduced in 
appendix IX, IRS agreed with our four recommendations. IRS noted that 
it was pleased that we recognized the overall success of its offshore 
strategy and provided steps that they are taking to implement our 
recommendations and address any identified noncompliance, as 
warranted. IRS also provided technical comments on our draft report, 
which we incorporated, as appropriate. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to report to 
the Chairmen and Ranking Members of other Senate and House committees 
and subcommittees that have appropriation, authorization, and 
oversight responsibilities for IRS. We are also sending copies to the 
Acting Commissioner of Internal Revenue, the Secretary of the 
Treasury, the Chairman of the IRS Oversight Board, and the Deputy 
Director for Management of the Office of Management and Budget. In 
addition, the report will be available at no charge on the GAO website 
at [hyperlink, http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact me at (202) 512-9110 or whitej@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made key contributions to 
this report are listed in appendix X. 

Signed by: 

James R. White: 
Director, Tax Issues Strategic Issues: 

[End of section] 

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. 

To describe the characteristics of taxpayers participating in the 2009 
OVDP, we relied on data for tax years 2003 through 2008 from four 
sources: (1) the Criminal Investigation Management Information System 
(CIMIS) managed by IRS's Criminal Investigation (CI) division; (2) the 
Currency and Banking Retrieval System managed by the Treasury 
Department's Financial Crimes Enforcement Network (FinCEN);[Footnote 
34] (3) IRS's Individual Master File and Business Master File; and (4) 
IRS's Compliance Data Warehouse (CDW). We used data from four 
databases in CDW: Enforcement Revenue Information System, Individual 
Returns Transaction File, Audit Information Management System, 
Individual, and Business Returns Transaction File. To determine the 
reliability of IRS's taxpayer data, we reviewed relevant 
documentation, conducted interviews with IRS officials knowledgeable 
of the data, and conducted electronic testing of the data to identify 
obvious errors or outliers. We determined that these data were 
sufficiently reliable for our purposes. 

Using these sources, we identified 19,337 participants in the 2009 
OVDP.[Footnote 35] The 2009 OVDP population figure that we use in this 
report differs from the population number issued publicly by IRS. 
IRS's publicly reported numbers are from CI, the IRS division that 
initially received and processed the 2009 OVDP applications, and is 
generally a count of applicants. Our figure is larger, primarily 
because it includes some spouses that were not captured on the CI 
list. For example, we counted two participants (versus instances where 
IRS may have only counted one) in situations where only one spouse 
applied to the 2009 OVDP through CI, but both were liable for the 
delinquent taxes, interest, and penalties because of their married 
filing jointly filing status. From the 19,337 participants, we 
identified 10,439 closed examination cases as of November 29, 2012, 
which we use in this report for our analysis of penalties. 

To obtain a better understanding of taxpayer noncompliance, we 
selected a random sample of 30 2009 OVDP case files for cases that 
were closed as of March 30, 2012, and that received a 2009 OVDP 
penalty of $1 million or greater.[Footnote 36] As part of the 2009 
OVDP application, taxpayers were asked to explain their reasons for 
establishing offshore accounts, the source of funds, the ownership 
structure, and the history of accounts. Many taxpayers in our sample 
submitted an IRS optional letter containing this information with 
their application (referred to in this report as the "application 
letter." See appendix III for sample application letters). Some 
taxpayers were interviewed by IRS investigators, and some responded to 
IRS follow-up requests for additional information. Additionally, other 
case file documents that provided key information were: (1) IRS Form 
906, Closing Agreement On Final Determination Covering Specific 
Matters; (2) IRS Form 4549-A, Income Tax Discrepancy Adjustments; (3) 
OVDP Penalty Computation Workpaper; and (4) form TD F 90-22.1, Report 
of Foreign Bank and Financial Accounts (FBAR). 

We used a standard data collection instrument to review each case file 
to ensure we consistently captured information about the 2009 OVDP 
participants, their offshore accounts, and their penalties, interest, 
and additional taxes owed. To ensure reliability, two analysts 
separately conducted this analysis, and a third analyst compared and 
reconciled any inconsistencies regarding the categorizations of 2009 
OVDP cases. The analysts then tallied the number of observations for 
each topic or category and all information was traced and verified. We 
then analyzed the results of this data collection effort to identify 
main themes and develop summary findings. We determined that these 
data were sufficiently reliable for our purposes. (See appendix VII 
for a summary of our data collection instrument results.) 

To determine the extent to which IRS used data from the 2009 OVDP in 
order to better prevent and detect future noncompliance, we also 
interviewed IRS officials from the office of the Offshore Compliance 
Initiative to determine what data they collected from the 2009 OVDP 
effort and how, if at all, IRS used that data to create taxpayer 
profile data to identify additional offshore noncompliance and inform 
future offshore programs. In addition, we reviewed changes that IRS 
made to the 2011 and 2012 offshore programs. 

To assess IRS's efforts to identify taxpayers who may have attempted 
quiet disclosures, we used the same datasets that we used to identify 
the 2009 OVDP population, as described above, plus FBAR data from 
FinCEN. To determine the reliability of FinCEN's FBAR data, we 
reviewed relevant documentation, conducted interviews with FinCEN 
officials knowledgeable of the data, and conducted electronic testing 
of the data to identify errors or outliers. We determined that these 
data were sufficiently reliable for our purposes. To identify 
potential quiet disclosures we conducted a three-step analysis. First, 
we used IRS tax return data to identify taxpayers who filed late or 
amended returns for the applicable 2009 OVDP period.[Footnote 37] We 
then used FBAR data to identify taxpayers who filed late or amended 
FBARs during the same time period to create a combined list of 
taxpayers. Finally, we removed from this combined list any taxpayers 
that we had previously identified as 2009 OVDP participants. The 
remaining taxpayers constitute our population of taxpayers who 
potentially "quietly disclosed" offshore accounts. From this 
population, we used data from amended tax returns to identify whether 
the amended returns had positive adjustments to income, and whether 
taxpayers filed amended returns for multiple years. We confirmed this 
methodology with IRS officials. The results of our analyses are shown 
in appendix VIII. To assess other ways taxpayers might be 
circumventing some of the taxes, interest, and penalties that would be 
otherwise owed, we analyzed filing trends in FBAR data from FinCEN and 
in Schedule B, Interest and Ordinary Dividends, of IRS Form 1040, U.S. 
Individual Income Tax Return, from IRS's Statistics of Income Division 
(SOI). To assess the reliability of the SOI data that we analyzed, we 
reviewed agency documentation and interviewed officials familiar with 
the data. We determined that these data were sufficiently reliable for 
our purposes. 

[End of section] 

Appendix II: Events that Influenced Participation in IRS's Offshore 
Programs: 

IRS's first offshore program started in 2003 as part of an ongoing, 
multipronged effort to counter offshore tax evasion. Related to the 
2003 program was the Offshore Credit Card Program, which stemmed from 
a series of John Doe summonses issued to a variety of financial and 
commercial businesses to obtain information on U.S. persons who held 
credit, debit, or other payment cards issued by offshore banks. IRS 
used records from the summonses to trace the identities of taxpayers 
whose use of these payment cards may have been related to hiding 
taxable income; this drew many other taxpayers to the offshore 
program.[Footnote 38] (See figure 5 for a timeline of key events.) 

IRS's three subsequent offshore voluntary disclosure programs ran more 
frequently, starting in 2009. The 2009 Offshore Voluntary Disclosure 
Program (OVDP) coincided with events that helped attract a very large 
number of taxpayers to the program. On February 18, 2009, UBS AG, a 
global financial services firm headquartered in Switzerland, entered 
into a deferred prosecution agreement confirming the account of a 
whistleblower and acknowledging that its employees participated in a 
scheme to actively assist and facilitate U.S. taxpayers' concealment 
of taxable income.[Footnote 39] As part of the deferred prosecution 
agreement, UBS agreed to turn over identities and account information 
on a limited number of clients. Later that month, the Department of 
Justice (DOJ) petitioned the U.S. District Court in Miami for an order 
enforcing a John Doe summons, seeking turnover of information on 
approximately 52,000 undisclosed accounts. By August 2009, IRS and DOJ 
announced they had reached a settlement agreement with Switzerland. 
The agreement required Swiss authorities to give IRS the names of 
approximately 4,450 U.S. clients with accounts at UBS, pursuant to a 
request under the USA-Switzerland income tax treaty. All parties 
agreed to keep confidential the specific criteria by which the 4,450 
accounts would be selected until after the 2009 OVDP deadline passed. 
This created uncertainty among UBS account holders as to whether their 
names were on the list to be disclosed. IRS gave taxpayers until 
October 15, 2009, to enter the program. IRS publicity about the 
program, and correspondence sent by UBS to all U.S. account holders, 
emphasized the several criminal and civil penalties applicable to 
taxpayers who did not make voluntary disclosures before Switzerland 
turned over the account data. 

The 2011 and 2012 programs had a similar draw for taxpayers. During 
the 2011 program, IRS and DOJ were building cases against tax evasion 
involving foreign banks in several countries, including Switzerland, 
Liechtenstein, Israel, and India. Many 2011 program participants came 
forward as a result of criminal enforcement activity and a John Doe 
summons issued to HSBC, a global banking and financial services firm 
headquartered in the United Kingdom, with significant business 
operations in Hong Kong and Asia. The 2012 program, which is still 
open and as of March 2013 does not have an end date, is expected to 
draw participants based on further criminal enforcement activity 
against foreign banks and opportunities for additional John Doe 
summonses that are being built by IRS and DOJ with information from 
past offshore programs. Also during this time, as the Foreign Account 
Tax Compliance Act (FATCA) becomes fully implemented, IRS expects to 
have increased information reporting from certain taxpayers and from 
foreign financial institutions on offshore accounts. 

Figure 5: Events That Influenced Participation in IRS's Offshore 
Programs: 

[Refer to PDF for image: timeline] 

October 2000: 
IRS John Doe summonses on American Express and MasterCard to obtain 
information on U.S. residents with credit cards from some offshore 
banks. 

March 2002: 
IRS John Doe summonses on VISA seeking records for credit cards issued 
in over 30 tax haven countries. 

August & October 2002: 
IRS John Doe summonses on more than 100 travel and other businesses 
where offshore credit cards were used. 

June 2007: 
UBS whistleblower begins providing information about UBS’ tax evasion 
services for U.S. clients. 

June 2008: 
IRS John Doe summons on UBS for information on U.S.customers. 

February 2009: 
UBS agrees to pay $780 million fine and release some U.S.client data 
to DOJ via the Swiss government. 

March-October 2009: 
IRS 2009 OVDP. 

August 2009: 
Swiss government agrees to direct UBS to give IRS information on 
thousands of U.S. client accounts. 

March 2010: 
FATCA enacted. 

February-September 2011: 
IRS’s 2011 Offshore. 

April 2011: 
IRS John Doe summons on HSBC Bank for information on U.S. clients with 
accounts at HSBC India. 

January 2012: 
IRS 2012 Offshore begins (still open). 

January 2012: 
FATCA self-reporting begins (Form 8938). 

Source: GAO analysis. 

Note: OVDP refers to Offshore Voluntary Disclosure Program and FATCA 
refers to Foreign Account Tax Compliance Act. 

[End of figure] 

[End of section] 

Appendix III: Sample 2009 and 2012 Offshore Program Application 
Letters: 

2009 Application Letter: 

The 2009 application letter was optional for participants in the 2009 
Offshore Voluntary Disclosure Program (OVDP). 

Offshore Voluntary Disclosures — Optional Format: 

If taxpayer has domestic issues only, please have them contact their 
local Criminal Investigation office for a traditional voluntary 
disclosure. 

<Date> 

Internal Revenue Service: 
Criminal Investigation: 
Attn: Voluntary Disclosure Coordinator: 
<City Field Office> 
<Address> 
<City, ST Zip Code> 

Re: Taxpayer Name: 
Tax Identification Number: 
Taxpayer Date of Birth: 
Taxpayer Address: 

Dear Voluntary Disclosure Coordinator: 

To assist in a timely determination of my acceptance into the 
Voluntary Disclosure Program, (for Voluntary Disclosures involving 
offshore accounts or assets) I have addressed all of the following 
items: 

* Please include your:
- Complete name:
- Social Security Number:
- DOB:
- Address:
- Passport Number (and Country):
- Current Occupation: 

* Taxpayer Representative and his/her contact information. 

* Explain the source of the funds. 

* Disclose if you or any related entities are currently under audit or 
criminal investigation by the Internal Revenue Service or any other 
law enforcement authority. 
- Has the IRS notified you that it intends to commence an examination 
or investigation? 
Yes: 
No: 
- Are you under criminal investigation by any law enforcement 
authority? 
Yes: 
No: 
- If yes, please explain. 

* Do you believe that the IRS has obtained information concerning your 
tax liability? 
Yes: 
No: 
- If yes, please specify. 

* Please check the box to estimate the annual range of the highest 
aggregate value of your offshore accounts/assets. 

Highest Aggregate Account/Asset Value: $0 to 100,000; 
2003: 
2004: 
2005: 
2006: 
2007: 
2008: 

Highest Aggregate Account/Asset Value: $100,000 to $1,000,000; 
2003: 
2004: 
2005: 
2006: 
2007: 
2008: 

Highest Aggregate Account/Asset Value: $1,000,000 to $2,500,000; 
2003: 
2004: 
2005: 
2006: 
2007: 
2008: 

Highest Aggregate Account/Asset Value: $2,500,000 to $10,000,000; 
2003: 
2004: 
2005: 
2006: 
2007: 
2008: 

Highest Aggregate Account/Asset Value: Greater than $10,000,000; 
2003: 
2004: 
2005: 
2006: 
2007: 
2008: 

Highest Aggregate Account/Asset Value: Greater than $100,000,000; 
2003: 
2004: 
2005: 
2006: 
2007: 
2008: 

* Please check the box to estimate the potential total unreported 
income from the offshore account(s) during each disclosure period. If 
known, please enter exact amounts/assets. 

Estimated Total Unreported Income: $0 to $100,000; 
2003: 
2004: 
2005: 
2006: 
2007: 
2008: 

Estimated Total Unreported Income: $100,000 to $1,000,000; 
2003: 
2004: 
2005: 
2006: 
2007: 
2008: 

Estimated Total Unreported Income: $1,000,000 to $2,500,000; 
2003: 
2004: 
2005: 
2006: 
2007: 
2008: 

Estimated Total Unreported Income: $2,500,000 to $10,000,000; 
2003: 
2004: 
2005: 
2006: 
2007: 
2008: 

Estimated Total Unreported Income: Greater than $10,000,000; 
2003: 
2004: 
2005: 
2006: 
2007: 
2008: 

* For accounts or assets where you have control or are a beneficial 
owner of the account or asset, list any and all financial institutions 
and the country where the institution is located. For accounts, please 
also list the dates the accounts were opened and/or closed. Provide 
your point of contact at each financial institution. 

* Explain the purpose for establishing the offshore account or assets. 
For example: Holocaust Compensation or Restitution; inherited account; 
account established prior to World War II, etc.; if tax non-
compliance — please explain. 

* List each person or entity affiliated with the account, their formal 
structure (i.e., if a corporation, foundation, or trust), and the 
nature of their relationship to the account (i.e. owner, power of 
attorney, parent entity of corporate account holder, etc.). 

* Explain all face to face meetings, and any other communications you 
had regarding the accounts or assets with the financial 
institution(s). Also include face to face meetings or communications 
regarding the accounts or assets with independent advisors/investment 
managers not from the financial institution(s) where the funds are 
held. Provide the names, locations and dates of these meetings and/or 
communications. 

To be included with all letters: 

By signing this document, I certify that I am willing to continue to 
cooperate with the Internal Revenue Service, including in assessing my 
income tax liabilities and making good faith arrangements to pay all 
taxes, interest, and penalties associated with this voluntary 
disclosure. 

Under penalties of perjury, I declare that I have examined this 
document and accompanying statements, and to the best of my knowledge 
and belief, they are true, correct, and complete. 

Signature of Taxpayer: 
Print Name: 
Date: 

[End of 2009 application letter] 

2012 Application Letter and New Required Attachment: 

IRS revised the 2009 application letter for subsequent programs, and 
included an attachment that required a more detailed reporting from 
taxpayers on their previously unreported offshore accounts. The 2012 
application letter was required for all participants in the 2012 
offshore program. 

Offshore Voluntary Disclosures: 

If taxpayer has domestic issues only, please have them apply for a 
traditional voluntary disclosure. 

Date: 

Internal Revenue Service: 
Voluntary Disclosure Coordinator: 
1-D04-100: 
2970 Market Street: 
Philadelphia, PA 19104: 

Re: Taxpayer Name: 
Tax Identification Number: 
Taxpayer Date of Birth: 
Taxpayer Address: 

Dear Voluntary Disclosure Coordinator: 

To assist in a timely determination of my acceptance into the 
Voluntary Disclosure Program, (for Voluntary Disclosures involving 
offshore accounts), I have addressed all of the following items: 

1. Please include:
* Complete name:
* Social Security Number:
* Date of Birth:
* Address:
* Passport Number (and Country): 
* Current Occupation: 

2. Taxpayer Representative and his/her contact information. 

3. Type of Voluntary Disclosure: 
Offshore Only: 
Offshore and Domestic: 

4. Identify the source of the funds. 

5. Have any of the offshore accounts you are disclosing been 
identified by the IRS as ineligible for this program?
Yes: 
No: 

6. Has anyone, including a foreign government or a foreign financial 
institution, advised you that your offshore account records, which are 
the subject of this voluntary disclosure, were susceptible to being 
turned over to the US Government pursuant to an official request?
Yes: 
No: 
* If yes, did you or anyone on your behalf submit documents in 
opposition?
Yes: 
No: 
* If yes, were copies of those documents provided to the Attorney 
General of the United States as required by 18 USC § 3506?
Yes: 
No: 

7. Disclose if you or any related entities are currently under audit 
or criminal investigation by the Internal Revenue Service or any other 
law enforcement authority. 
* Has the IRS notified you that it intends to commence an examination 
or investigation?
Yes: 
No: 
* Are you under criminal investigation by any law enforcement authority?
Yes: 
No: 
If yes, please explain: 

8. Do you believe that the IRS has obtained information concerning 
your tax liability?
Yes: 
No: 
If yes, please specify. 

9. Please check the box to estimate the annual range of the highest 
aggregate value of your offshore accounts: 

Highest Aggregate Account/Asset Value: 

$0 to $100,300: 
Tax Year: 

$100,000 to $1,000,000: 
Tax Year: 

$1,000,000 to $2,500,000: 
Tax Year: 

$2,500,000 to $10,000,000: 
Tax Year: 

$10,000,000 to $100,000,000: 
Tax Year: 

Greater than $100,000,000: 
Tax Year: 

10. Please check the box to estimate the range of potential total 
unreported income from the offshore account(s) during each disclosure 
period: 

Estimated Total Unreported Income: 

$0 to $100,000: 
Tax Year: 

$100,000 to $1,000,000: 
Tax Year: 

$1,000,000 to $2,500,000: 
Tax Year: 

$2,500,000 to $10,000,000: 
Tax Year: 

Greater than $10.000,000: 
Tax Year: 

For each foreign financial account of which you have control or are a 
beneficial owner, complete the attached form entitled "Attachment to 
Offshore Voluntary Disclosures Letter." Please ensure all pages of the 
attachment include your name, the last four digits of your taxpayer 
identification number, the name of the foreign financial institution, 
and the account number for which you are responding. 

To be included with all letters: 

By signing this document, I certify that I am willing to continue to 
cooperate with the Internal Revenue Service, including in assessing my 
income tax liabilities and making good faith arrangements to pay all 
taxes, interest, and penalties associated with this voluntary 
disclosure. 

Under penalties of perjury, I declare that I have examined this 
document, all attachments, and accompanying statements, and to the 
best of my knowledge and belief, they are true, correct, and complete. 

Signature of Taxpayer: 
Print Name: 
Date: 

Signature of Taxpayer's Spouse: 
Print Name: 
Date: 

IRS reserves the right to make further contacts with the taxpayer to 
clarify his/her submission. 

[End of 2012 application letter] 

Taxpayer Name: 
Last Four Digits of Taxpayer Identification Number: 
Foreign Financial Institution Name: 
Account Number: 

Attachment To Offshore Voluntary Disclosures Letter: 

Please ensure all pages of the attachment include your name, the last 
four digits of your taxpayer identification number, the name of the 
foreign financial institution, and the account number for which you 
are responding. 

For each foreign financial account of which you have control or are a 
beneficial owner, provide the following information: 

1. Name of the foreign financial institution. 

2. Country, including address, where the account was established: 
* If different, country, including address, where the account is 
currently located. 

3. Date the account was opened. 

4. Is the account still open?
Yes: 
No: 

If no, when was the account closed? 

5. Identify the individual(s) and/or organization(s) (e.g., banks, 
independent financial advisors, trust or corporate service providers) 
who advised or assisted you in opening and using/maintaining the 
account. 

* Explain all communications you had regarding the opening and 
use/maintenance of the account. Identify the individuals (whether 
affiliated with the foreign financial institution or independent from 
the financial institution), dates, and form (e.g., face-to-face 
meeting, phone, email, fax, etc.) of the communication.
- Did you hold any meetings or receive any phone calls, faxes, emails, 
or any other communications from these individuals to you in the U.S.?
Yes: 
No: 

If yes, where? 

* Are any of the individuals a business person (advisor), accountant, 
attorney, or return preparer in the U.S.?
Yes: 
No: 

If yes, identify which organization(s) 

6. What documentation was received by or shown to you regarding 
opening and maintenance of the account (e.g., account statements, 
account opening documents, etc.)? 

Did you retain any of the documents?
Yes: 
No: 

If yes, identify the documents retained. 

a If no, explain why you did not retain them. 

7. Were you able to make deposits to or withdrawals from your account 
through the use of a U.S. domestic branch office of the foreign 
financial institution?
Yes: 
No: 

8. Did you make deposits (beyond the initial opening deposit) or 
withdrawals from the account?
Yes: 
No: 

If yes, respond to the following: 

- How did you make a deposit or withdrawal (e.g., in person, computer, 
phone, use of third-party, etc.)? 

- What form did the deposits or withdrawals take (e.g., cash, check, 
wire, traveler's check, etc.)? 

- What documents did you receive when a deposit or withdrawal was made 
(e.g., receipt, debit memo, credit memo, etc.)? 

9. Were you able to access funds in your offshore account by the use 
of wire transfers made into the U.S.?
Yes: 
No: 

10. Were you able to access funds in your offshore account through the 
use of a debit or credit card?
Yes: 
No: 
11. Are there other individuals affiliated with the account?
Yes: 
No: 

If yes, identify each person affiliated with the account, including 
the nature of their relationship to the account (e.g., owner, 
beneficial owner, power of attorney, etc.). 

12. Is an entity affiliated with the account?
Yes: 
No: 

If yes, respond to the following for each entity: 

* Identify the entity, including the nature of its relationship to the 
account (e.g., nominee owner, beneficial owner, power of attorney, 
parent entity of corporate account holder, etc.). 

* Identify the entity's formal structure (e.g., corporation, 
foundation, trust, etc.). 

* Identify the country where the entity was organized. 

* Identify the individual(s) and/or organization(s) (e.g., the foreign 
bank, an outside professional, etc.) who suggested forming the entity 
and who formed the entity. 

* Identify the individual(s) or organization(s) that managed the 
entity. 

* Is the entity still in existence?
Yes: 
No: 

* Was a business person (advisor), accountant, attorney, or return 
preparer in the U.S. involved in setting up the entity or in advising 
its use?
Yes: 
No: 

If yes, identify the individual(s). 

* Was a U.S. bank, brokerage firm or other financial services company 
involved in setting up the entity or in advising its use?
Yes: 
No: 

If yes, identify the bank, firm, or company. 

13. With respect to communications you had about your foreign 
financial account, provide the following: 

* Did a representative of the foreign financial institution or advisor 
visit you in the United States regarding the offshore account?
Yes: 
No: 

* Did a representative of the foreign financial institution or advisor 
suggest to you the use of offshore accounts, offshore investments, 
offshore entities, or particular foreign countries as a way of 
avoiding the disclosure of your ownership of the account or avoiding 
taxes?
Yes: 
No: 

* Did a representative of the foreign financial institution or advisor 
suggest to you the use of practices, such as holding mail at the 
institution, using prepaid phone cards, using credit or debit cards, 
communicating via fax or email, bank storage of account documentation, 
or conducting face-to-face-meetings, to avoid the disclosure of your 
ownership of the account?
Yes: 
No: 

* Did a representative of the foreign financial institution, one of 
its U.S. subsidiaries, or advisor provide services in the U.S. related 
to offshore accounts (e.g., facilitating opening accounts, reviewing 
account activity, forwarding account statements, providing investment 
and/or tax advice, etc.)?
Yes: 
No: 

* Did a representative of the foreign financial institution or advisor 
suggest you meet in a jurisdiction outside the U.S. and other than 
where the institution is located?
Yes: 
No: 

* Did a representative of the foreign financial institution or advisor 
suggest you either not file a voluntary disclosure with the IRS or 
repatriate the foreign funds into the U.S.?
Yes: 
No: 

* Did an advisor or other person attempt to influence you to move 
funds from one foreign financial institution to another or from one 
foreign country to another?
Yes: 
No: 

[End of Attachment To Offshore Voluntary Disclosures Letter] 

[End of section] 

Appendix IV: Hypothetical Examples Comparing Account Balances, Length 
of Account Ownership, and Penalties: 

The 2009 Offshore Voluntary Disclosure Program (OVDP) penalties follow 
what some tax practitioners have called "rough justice" because of the 
relationship between the offshore penalties and the original taxes 
evaded. Figure 6 illustrates how two hypothetical offshore accounts 
bearing 5 percent interest might grow over time. One account is owned 
by a compliant taxpayer who reports the interest income and pays U.S. 
taxes at a 35 percent rate with earnings from the account. The other 
account is owned by a noncompliant taxpayer who does not report the 
interest income. Assuming both taxpayers deposited $1 million in 1986, 
the compliant taxpayer would accumulate a balance of approximately 
$2.1 million by 2009 and the noncompliant taxpayer would accumulate 
$3.1 million. The compliant taxpayer would have paid tax in each year 
the account was open, totaling about $585,000 in cumulative taxes on 
the reported account's interest over 23 years. A noncompliant taxpayer 
who participated in the 2009 OVDP would, after disclosing the account, 
make a one-time payment in 2009 of about $993,000 in taxes, interest, 
and penalties. Although the 2009 OVDP participant would pay more in 
total taxes and penalties, the final account balances for both 
taxpayers would be roughly the same. 

Figure 6: Hypothetical Comparison of Offshore Account Growth for 
Compliant (Reported and Taxed) and Noncompliant (Unreported and 
Untaxed) Taxpayers, and Changes in Account Balances by Participating 
in the 2009 OVDP: 

[Refer to PDF for image: multiple line graph] 

Years of account ownership prior to 2009 OVDP: 1; 
Compliant taxed account balance: $1.0 million; 
Noncompliant balance after OVDP: $818,103; 
Noncompliant untaxed account balance: $1.1 million. 

Years of account ownership prior to 2009 OVDP: 2; 
Compliant taxed account balance: $1.1 million; 
Noncompliant balance after OVDP: $836,168; 
Noncompliant untaxed account balance: $1.1 million. 

Years of account ownership prior to 2009 OVDP: 3; 
Compliant taxed account balance: $1.1 million; 
Noncompliant balance after OVDP: $854,144; 
Noncompliant untaxed account balance: $1.2 million. 

Years of account ownership prior to 2009 OVDP: 4; 
Compliant taxed account balance: $1.1 million; 
Noncompliant balance after OVDP: $871,977; 
Noncompliant untaxed account balance: $1.2 million. 

Years of account ownership prior to 2009 OVDP: 5; 
Compliant taxed account balance: $1.2 million; 
Noncompliant balance after OVDP: $889,606; 
Noncompliant untaxed account balance: $1.3 million. 

Years of account ownership prior to 2009 OVDP: 6; 
Compliant taxed account balance: $1.2 million; 
Noncompliant balance after OVDP: $906,964; 
Noncompliant untaxed account balance: $1.3 million. 

Years of account ownership prior to 2009 OVDP: 7; 
Compliant taxed account balance: $1.3 million; 
Noncompliant balance after OVDP: $952,312; 
Noncompliant untaxed account balance: $1.4 million. 

Years of account ownership prior to 2009 OVDP: 8; 
Compliant taxed account balance: $1.3 million; 
Noncompliant balance after OVDP: $999,928; 
Noncompliant untaxed account balance: $1.5 million. 

Years of account ownership prior to 2009 OVDP: 9; 
Compliant taxed account balance: $1.3 million; 
Noncompliant balance after OVDP: $1.1 million; 
Noncompliant untaxed account balance: $1.6 million. 

Years of account ownership prior to 2009 OVDP: 10; 
Compliant taxed account balance: $1.4 million; 
Noncompliant balance after OVDP: $1.1 million; 
Noncompliant untaxed account balance: $1.6 million. 

Years of account ownership prior to 2009 OVDP: 11; 
Compliant taxed account balance: $1.4 million; 
Noncompliant balance after OVDP: $1.2 million; 
Noncompliant untaxed account balance: $1.7 million. 

Years of account ownership prior to 2009 OVDP: 12; 
Compliant taxed account balance: $1.5 million; 
Noncompliant balance after OVDP: $1.2 million; 
Noncompliant untaxed account balance: $1.8 million. 

Years of account ownership prior to 2009 OVDP: 13; 
Compliant taxed account balance: $1.5 million; 
Noncompliant balance after OVDP: $1.3 million; 
Noncompliant untaxed account balance: $1.9 million. 

Years of account ownership prior to 2009 OVDP: 14; 
Compliant taxed account balance: $1.6 million; 
Noncompliant balance after OVDP: $1.3 million; 
Noncompliant untaxed account balance: $2.0 million. 

Years of account ownership prior to 2009 OVDP: 15; 
Compliant taxed account balance: $1.6 million; 
Noncompliant balance after OVDP: $1.4 million; 
Noncompliant untaxed account balance: $2.1 million. 

Years of account ownership prior to 2009 OVDP: 16; 
Compliant taxed account balance: $1.7 million; 
Noncompliant balance after OVDP: $1.5 million; 
Noncompliant untaxed account balance: $2.2 million. 

Years of account ownership prior to 2009 OVDP: 17; 
Compliant taxed account balance: $1.7 million; 
Noncompliant balance after OVDP: $1.6; 
Noncompliant untaxed account balance: $2.3 million. 

Years of account ownership prior to 2009 OVDP: 18; 
Compliant taxed account balance: $1.8 million; 
Noncompliant balance after OVDP: $1.6 million; 
Noncompliant untaxed account balance: $2.4 million. 

Years of account ownership prior to 2009 OVDP: 19; 
Compliant taxed account balance: $1.8 million; 
Noncompliant balance after OVDP: $1.7 million; 
Noncompliant untaxed account balance: $2.5 million. 

Years of account ownership prior to 2009 OVDP: 20; 
Compliant taxed account balance: $1.9 million; 
Noncompliant balance after OVDP: $1.8 million; 
Noncompliant untaxed account balance: $2.7 million. 

Years of account ownership prior to 2009 OVDP: 21; 
Compliant taxed account balance: $2.0 million; 
Noncompliant balance after OVDP: $1.9 million; 
Noncompliant untaxed account balance: $2.8 million. 

Years of account ownership prior to 2009 OVDP: 22; 
Compliant taxed account balance: $2.0 million; 
Noncompliant balance after OVDP: $2.0 million; 
Noncompliant untaxed account balance: $2.9 million. . 

Years of account ownership prior to 2009 OVDP: 23; 
Compliant taxed account balance: $2.1 million; 
Noncompliant balance after OVDP: $2.1 million; 
Noncompliant untaxed account balance: $3.1 million. 

Years of account ownership prior to 2009 OVDP: 24; 
Compliant taxed account balance: $2.2 million; 
Noncompliant balance after OVDP: $2.2 million; 
Noncompliant untaxed account balance: $3.2 million. 

Years of account ownership prior to 2009 OVDP: 25; 
Compliant taxed account balance: $2.2 million; 
Noncompliant balance after OVDP: $2.3 million; 
Noncompliant untaxed account balance: $3.4 million. 

Years of account ownership prior to 2009 OVDP: 26; 
Compliant taxed account balance: $2.3 million; 
Noncompliant balance after OVDP: $2.4 million; 
Noncompliant untaxed account balance: $3.6 million. 

Years of account ownership prior to 2009 OVDP: 27; 
Compliant taxed account balance: $2.4 million; 
Noncompliant balance after OVDP: $2.5 million; 
Noncompliant untaxed account balance: $3.7 million. 

Years of account ownership prior to 2009 OVDP: 28; 
Compliant taxed account balance: $2.4 million; 
Noncompliant balance after OVDP: $2.7 million; 
Noncompliant untaxed account balance: $3.9 million. 

Years of account ownership prior to 2009 OVDP: 29; 
Compliant taxed account balance: $2.5 million; 
Noncompliant balance after OVDP: $2.8 million; 
Noncompliant untaxed account balance: $4.1 million. 

Years of account ownership prior to 2009 OVDP: 30; 
Compliant taxed account balance: $2.6 million; 
Noncompliant balance after OVDP: $2.9 million; 
Noncompliant untaxed account balance: $4.3 million. 

Years of account ownership prior to 2009 OVDP: 31; 
Compliant taxed account balance: $2.7 million; 
Noncompliant balance after OVDP: $3.1 million; 
Noncompliant untaxed account balance: $4.5 million. 

Years of account ownership prior to 2009 OVDP: 32; 
Compliant taxed account balance: $2.8 million; 
Noncompliant balance after OVDP: $3.2 million; 
Noncompliant untaxed account balance: $4.8 million. 

Years of account ownership prior to 2009 OVDP: 33; 
Compliant taxed account balance: $2.9 million; 
Noncompliant balance after OVDP: $3.4 million; 
Noncompliant untaxed account balance: $5.0 million. 

Years of account ownership prior to 2009 OVDP: 34; 
Compliant taxed account balance: $3.0; 
Noncompliant balance after OVDP: $3.6 million; 
Noncompliant untaxed account balance: $5.2 million. 

Years of account ownership prior to 2009 OVDP: 35; 
Compliant taxed account balance: $3.1 million; 
Noncompliant balance after OVDP: $3.7 million; 
Noncompliant untaxed account balance: $5.5 million. 

Source: GAAO analysis. 

Note: The following assumptions were used to construct the figure: (1) 
a $1 million opening account balance; (2) 5 percent annual rate of 
return on the offshore account; (3) 35 percent U.S. income tax rate and 
zero offshore tax rate; (4) 20 percent 2009 OVDP offshore penalty 
applied to the account balance; (5) 20 percent accuracy-related penalty 
on the taxes owed for tax year 2003 through tax year 2008; and (6) IRS 
interest of 5 percent on taxes owed for tax year 2003 through tax year 
2008. The point at which the compliant taxpayer's account balance 
(solid black line) equals the 2009 OVDP participant's post-penalty 
balance (dashed grey line) is affected by changes in the assumptions. 
For example, a higher rate of return on the offshore account shortens 
this "rough justice" point, whereas a higher 2009 OVDP offshore penalty 
rate (greater than 20 percent) lengthens it. 

[End of figure] 

Using the same hypothetical model from figure 6 can help illustrate 
how taxpayers with newer offshore accounts that have not accumulated 
decades of untaxed interest income are treated. Assuming the 
hypothetical accounts in figure 6 were opened in 2004 (instead of 
1986), the compliant taxpayer would have paid about $93,000 in taxes 
on the interest income and accumulated a balance of about $1.2 million 
by 2009, and the noncompliant taxpayer paying no taxes would have 
accumulated about $1.3 million. If the noncompliant taxpayer came 
forward through the 2009 OVDP, the penalties, interest, and delinquent 
taxes would have totaled about $387,000. The 2009 OVDP participant's 
ending account balance would be about $890,000, which is less than the 
original opening deposit amount. 

[End of section] 

Appendix V: 2009 Offshore Voluntary Disclosure Program Participants 
with Employer Identification Numbers: 

We identified 200 2009 OVDP participants with an Employer 
Identification Number (EIN), which is used by IRS to identify a 
business entity. We did not have complete information on all of the 
businesses in our sample. In addition, not all of the businesses had 
filing requirements in every year covered by the 2009 OVDP. Table 4 
shows the tax forms filed by some of the businesses in tax year 2008, 
and table 5 shows the self-reported North American Industry 
Classification System (NAICS) code. 

Table 4: 2008 Business Filing Requirements for 2009 OVDP Business 
Participants: 

Filing requirement: Form 1041 and 1041A (estates and trusts); 
Count of EINs[A]: 27. 

Filing requirement: Form 1065 (partnership income); 
Count of EINs[A]: 9. 

Filing requirement: Form 1120 (U.S. corporation); 
Count of EINs[A]: 66. 

Source: GAO analysis of IRS's Compliance Data Warehouse and Business 
Returns Transactions File. 

[A] Some 2009 OVDP businesses may not have a filing requirement or may 
not have filed during tax year 2008: 

[End of table] 

Table 5: Self-Reported Industry Code on 2008 Tax Return for 2009 OVDP 
Businesses: 

NAISC category/CIMIS description: Agriculture, forestry, fishing and 
hunting; 
Count of EINs[A]: 2; 
Percent of EINs: 1.1%. 

NAISC category/CIMIS description: Mining, quarrying, and oil and gas 
extraction; 
Count of EINs[A]: 2; 
Percent of EINs: 1.1%. 

NAISC category/CIMIS description: Construction; 
Count of EINs[A]: 6; 
Percent of EINs: 3.3%. 

NAISC category/CIMIS description: Manufacturing; 
Count of EINs[A]: 4; 
Percent of EINs: 2.2%. 

NAISC category/CIMIS description: Wholesale trade; 
Count of EINs[A]: 14; 
Percent of EINs: 7.6%. 

NAISC category/CIMIS description: Retail trade; 
Count of EINs[A]: 8; 
Percent of EINs: 4.4%. 

NAISC category/CIMIS description: Transportation and warehousing; 
Count of EINs[A]: 2; 
Percent of EINs: 1.1%. 

NAISC category/CIMIS description: Information (publishing, newspaper, 
etc.); 
Count of EINs[A]: 3; 
Percent of EINs: 1.6%. 

NAISC category/CIMIS description: Finance and insurance; 
Count of EINs[A]: 12; 
Percent of EINs: 6.5%. 

NAISC category/CIMIS description: Real estate and rental and leasing; 
Count of EINs[A]: 9; 
Percent of EINs: 4.9%. 

NAISC category/CIMIS description: Professional, scientific, and 
technical services; 
Count of EINs[A]: 16; 
Percent of EINs: 8.7%. 

NAISC category/CIMIS description: Management of companies and 
enterprises; 
Count of EINs[A]: 4; 
Percent of EINs: 2.2%. 

NAISC category/CIMIS description: Administrative and support and waste 
management and remediation services; 
Count of EINs[A]: 2; 
Percent of EINs: 1.1%. 

NAISC category/CIMIS description: Educational services; 
Count of EINs[A]: 2; 
Percent of EINs: 1.1%. 

NAISC category/CIMIS description: Health care and social assistance; 
Count of EINs[A]: 5; 
Percent of EINs: 2.7%. 

NAISC category/CIMIS description: Arts, entertainment, and recreation; 
Count of EINs[A]: 6; 
Percent of EINs: 3.3%. 

NAISC category/CIMIS description: Accommodation and food services; 
Count of EINs[A]: 4; 
Percent of EINs: 2.2%. 

NAISC category/CIMIS description: Other services (except public 
administration); 
Count of EINs[A]: 4; 
Percent of EINs: 2.2%. 

NAISC category/CIMIS description: Estate or trust based on CIMIS name 
description; 
Count of EINs[A]: 66; 
Percent of EINs: 35.9%. 

NAISC category/CIMIS description: NAISC unknown, not estate or trust; 
Count of EINs[A]: 13; 
Percent of EINs: 7.1%. 

Source: GAO analysis of IRS's Compliance Data Warehouse and Business 
Returns Transactions File. 

[A] Some 2009 OVDP businesses may not have a filing requirement or may 
not have filed during tax year 2008: 

[End of table] 

[End of section] 

Appendix VI: Additional 2009 Offshore Voluntary Disclosure Program 
Participant Characteristics: 

Taxpayers participating in the 2009 OVDP most often used the married 
filing jointly filing status, were most often age 55 and over, and had 
an average adjusted gross income of about $528,000, as show in table 6. 

Table 6: Taxpayer and 2009 OVDP Participant Income and Demographics 
for Tax Year 2008: 

Returns filed for tax year 2008: 

Filing status: Single; 
All tax returns: 
Number of returns: 64,896,521; 
Percent of all returns: 46%; 
2009 OVDP returns: 
Number of returns: 2,890; 
Percent of all returns: 27%. 

Filing status: Married filing jointly; 
All tax returns: 
Number of returns: 53,655,844; 
Percent of all returns: 38%; 
2009 OVDP returns: 
Number of returns: 6,708; 
Percent of all returns: 64%. 

Filing status: Married filing separately; 
All tax returns: 
Number of returns: 2,717,037; 
Percent of all returns: 2%; 
2009 OVDP returns: 
Number of returns: 608; 
Percent of all returns: 6%. 

Filing status: Head of household; 
All tax returns: 
Number of returns: 21,098,890; 
Percent of all returns: 15%; 
2009 OVDP returns: 
Number of returns: 332; 
Percent of all returns: 3%. 

Filing status: Surviving spouse; 
All tax returns: 
Number of returns: 82,276; 
Percent of all returns: less than 1%; 
2009 OVDP returns: 
Number of returns: 5; 
Percent of all returns: less than 1%. 

Age: 65 and over; 
All tax returns:
Number of returns: 19,963,516; 
Percent of all returns: 14%; 
2009 OVDP returns: 
Number of returns: 3,864; 
Percent of all returns: 37%. 

Age: 55 under 65; 
All tax returns: 
Number of returns: 19,662,988; 
Percent of all returns: 14%; 
2009 OVDP returns: 
Number of returns: 2,584; 
Percent of all returns: 25%. 

Age: 45 under 55; 
All tax returns: 
Number of returns: 26,091,781; 
Percent of all returns: 18%; 
2009 OVDP returns: 
Number of returns: 2,191; 
Percent of all returns: 21%. 

Age: 35 under 45; 
All tax returns: 
Number of returns: 25,515,310; 
Percent of all returns: 18%; 
2009 OVDP returns: 
Number of returns: 1,304; 
Percent of all returns: 12%. 

Age: 26 under 35; 
All tax returns: 
Number of returns: 23,923,140; 
Percent of all returns: 17%; 
2009 OVDP returns: 
Number of returns: 451; 
Percent of all returns: 4%. 

Age: under 26; 
All tax returns: 
Number of returns: 25,623,607; 
Percent of all returns: 18%; 
2009 OVDP returns: 
Number of returns: 121; 
Percent of all returns: 1%. 

Age: unknown; 
All tax returns: 
Number of returns: 1,670,226; 
Percent of all returns: 1%; 
2009 OVDP returns: 
Number of returns: 28; 
Percent of all returns: less than 1%. 

Adjusted gross income (AGI): Mean AGI; 
All tax returns: 
Number of returns: $58,005; 
2009 OVDP returns: 
Number of returns: $527,610. 

Adjusted gross income (AGI): Median AGI; 
All tax returns: 
Number of returns: $32,261; 
2009 OVDP returns: 
Number of returns: $136,878. 

Source: GAO analysis of IRS Individual Returns Transaction File and 
Statement of Income databases. 

[End of table] 

[End of section] 

Appendix VII: Data Collected from a Sample of 30 2009 Offshore 
Voluntary Disclosure Program Case Files with Large Penalties: 

As noted in appendix I, we used a standard data collection instrument 
to capture information from a sample of 30 2009 OVDP cases in which 
taxpayers received offshore penalties of $1 million or greater. We 
then analyzed the results to identify main themes, and develop the 
summary findings presented in this report. The information in this 
appendix contains information from our case file reviews. 

Account Balances and Total Penalties, Taxes, and Interest: 

We calculated offshore account balances based on penalty information. 
For our sample of 30 cases, the average account balance was almost $15 
million, as shown in table 7 with other key information. 

Table 7: Selected Offshore Account Balances, Taxes, and Penalties from 
a Case Study of 30 2009 OVDP Cases with Penalties of $1 Million or 
Greater: 

Adjusted gross income, tax year 2008[A]: 
Mean: $2,550,043; 
Median: $359,333. 

Offshore account(s) balance[B]: 
Mean: $14,674,778; 
Median: $7,898,603. 

OVDP penalty assessed: 
Mean: $2,934,956; 
Median: $1,579,721. 

Additional tax, tax years 2003-2008[C]: 
Mean: $851,745; 
Median: $480,318. 

Interest, tax years 2003-2008: 
Mean: $264,686; 
Median: $146,856. 

Other penalties[D]: 
Mean: $196,754; 
Median: $102,877. 

Total penalties, taxes, and interest: 
Mean: $4,218,937; 
Median: $2,420,399. 

Source: GAO analysis of IRS Enforcement Revenue Information System, and 
Individual Returns Transaction File. 

Note: The cases were randomly selected to the population with penalties 
of $1 million or greater, but due to the small number of cases, we do 
not recommend generalizing the mean and median to the population. The 
sum of components may not add to the total. 

[A] Adjusted gross income is from original, not amended, returns. 

[B] OVDP offshore account balance is an estimated number based on 
penalty amounts. It represents the highest aggregate balance of all 
offshore accounts between 2003 and 2008. 

[C] For a few cases in our sample, no additional tax or interest was 
assessed. 

[D] Other penalties include delinquency penalties and accuracy related 
penalties, which most taxpayers in our sample received. 

[End of table] 

Bank Locations and Names: 

Most of the 30 cases we reviewed contained some information about the 
bank names and country locations of the offshore accounts. In some 
cases, 2009 OVDP participants disclosed dozens of offshore accounts 
with multiple banks and in multiple countries; in other cases, 
participants reported only one account. Only those offshore accounts 
that were open in tax year 2003 through tax year 2008 were included in 
the calculation of the 20 percent 2009 OVDP penalty. In compiling our 
profile, we only included information on accounts that were open 
during the 2009 OVDP applicable period and included in the penalty 
calculation. (Some participants disclosed additional offshore accounts 
that were closed prior to 2003 and not part of the 2009 OVDP penalty 
calculation.) Figure 7 illustrates the most commonly disclosed country 
locations. A total of 17 different locations were noted in the 28 
cases that disclosed locations, with Switzerland being the most 
commonly reported location. 

Figure 7: Locations of Offshore Accounts as Disclosed in a Sample of 
30 2009 OVDP Cases with Penalties of $1 Million or Greater: 

[Refer to PDF for image: horizontal bar graph] 

Bank location (country/region): Switzerland; 
Number of cases reporting one or more accounts: 24. 

Bank location (country/region): Hong Kong; 
Number of cases reporting one or more accounts: 4. 

Bank location (country/region): Israel; 
Number of cases reporting one or more accounts: 4. 

Bank location (country/region): Caribbean[A]; 
Number of cases reporting one or more accounts: 3. 

Bank location (country/region): China; 
Number of cases reporting one or more accounts: 2. 

Bank location (country/region): Luxembourg; 
Number of cases reporting one or more accounts: 2. 

Bank location (country/region): Other[B]; 
Number of cases reporting one or more accounts: 6. 

Source: GAO analysis of 30 2009 OVDP case files with penalties of $1 
million or greater. 

Note: The total number of countries exceeds the total number of case 
files we reviewed (30) because some taxpayers had accounts in multiple 
locations. 

[A] Caribbean region could include Bermuda, British Virgin Islands, and 
Cayman Islands. 

[B] Six cases disclosed offshore accounts in a total of nine other 
countries, and each country appeared once in our sample. 

[End of figure] 

Figure 8 illustrates the most commonly disclosed bank names. A total 
of 42 different banks were reported in the 29 cases that contained 
bank name information, with UBS by far the most commonly disclosed 
bank name, followed by Swiss banks Julius Baer, and Credit Suisse. 

Figure 8: Bank Names of Offshore Accounts as Reported in a Sample of 
30 2009 OVDP Cases with Penalties of $1 Million or Greater: 

[Refer to PDF for image: horizontal bar graph] 

Bank name: UBS; 
Number of cases reporting one or more accounts at bank: 21. 

Bank name: Julius Baer; 
Number of cases reporting one or more accounts at bank: 7. 

Bank name: Credit Suisse; 
Number of cases reporting one or more accounts at bank: 6. 

Bank name: Zucher Kantonalbank; 
Number of cases reporting one or more accounts at bank: 3. 

Bank name: HSBC; 
Number of cases reporting one or more accounts at bank: 3. 

Bank name: Pictet; 
Number of cases reporting one or more accounts at bank: 2. 

Bank name: Bank of China; 
Number of cases reporting one or more accounts at bank: 2. 

Bank name: Bank Hapoalim; 
Number of cases reporting one or more accounts at bank: 2. 

Bank name: Bank Leumi; 
Number of cases reporting one or more accounts at bank: 2. 

Bank name: Other bank names[A]; 
Number of cases reporting one or more accounts at bank: 17. 

Source: GAO analysis of 30 2009 OVDP case files with penalties of $1 
million or greater. 

Note: The total number of bank names exceeds the total number of case 
files we reviewed (30) because some taxpayers had accounts in multiple 
banks. 

[A] 17 cases disclosed other bank names that appeared less frequently 
(only once) in our sample. In 9 of these cases, one or more accounts 
were with other Swiss banks not named above. 

[End of figure] 

Age of Accounts: 

Twenty-two of the case files we reviewed contained information about 
the history of the accounts and the nature of the taxpayer's 
noncompliance. Many of the accounts had been opened decades ago. The 
median period of time that participants had owned but not reported 
income from these accounts, was 18 years, and the average period was 
25 years. In four cases, the participants had owned offshore accounts 
for 50 years or longer. 

Summary of Data Collection Instrument Results: 

Table 8 summarizes key information from the data collection instrument 
we used to collect information on the 30 offshore case files we 
reviewed. 

Table 8: Selected Data Collection Instrument Questions and Response 
Counts from Sample of 30 2009 OVDP Case Files with Penalties of $1 
Million or Greater: 

Citizenship, and residency: 

Is the taxpayer (or spouse) a U.S. citizen? 
Frequency: 
Yes: 23; 
No: 1; 
Not in file[A]: 6. 

If yes, is the taxpayer (or spouse) a naturalized citizen? 
Frequency: 
Yes: 7; 
No: 13; 
Not in file[A]: 3. 

If yes, is the taxpayer (or spouse) a dual citizen? 
Frequency: 
Yes: 3; 
No: 20; 
Not in file[A]: 0. 

Do the taxpayer(s) reside outside the U.S.? 
Frequency: 
Yes: 3; 
No: 26; 
Not in file[A]: 1. 

Account(s) histories: 

Were any of the offshore accounts with UBS? 
Frequency: 
Yes: 21; 
No: 8; 
Not in file[A]: 1. 

Did the taxpayer (or spouse) open the offshore account(s) while a non-
U.S. resident? 
Frequency: 
Yes: 10; 
No: 12; 
Not in file[A]: 8. 

Did the taxpayer (or spouse) inherit the offshore account(s) from a 
spouse, parent, or other relative? 
Frequency: 
Yes: 14; 
No: 9; 
Not in 
file[A]: 7. 

If inherited, did the prior owner open the account(s) while a non-U.S. 
resident? 
Frequency: 
Yes: 11; 
No: 0; 
Not in file[A]: 3. 

If inherited, was the prior owner not a U.S. citizen? 
Frequency: 
Yes: 6; 
No: 7; 
Not in file[A]: 1. 

If inherited, was the prior owner a Holocaust survivor? 
Frequency: 
Yes: 5; 
No: 5; 
Not in file[A]: 4. 

Ownership types: 

Did the taxpayer(s) jointly own or manage the account(s) with other 
family or relatives (other than spouses)? 
Frequency: 
Yes: 7; 
No: 16; 
Not in file[A]: 7. 

Did other family or relatives also disclose offshore accounts? 
Frequency: 
Yes: 10; 
No: 0; 
Not in file[A]: 20. 

Did the taxpayer(s) own or manage the account(s) through foreign 
corporations, trusts, foundations or other offshore entities? 
Frequency: 
Yes: 12; 
No: 0; 
Not in file[A]: 18. 

Taxes paid: 

Did the taxpayer(s) pay U.S. taxes on any of the funds originally 
deposited into the account(s)? 
Frequency: 
Yes: 7; 
No: 10; 
Not in file[A]: 13. 

Did the case file indicate that the taxpayer paid foreign income 
taxes? 
Frequency: 
Yes: 16; 
No: 12; 
Not in file[A]: 2. 

Source of funds: 

Was the original source of funds deposited into the accounts:[B] 

an inheritance? 
Frequency: 
Yes: 14; 
No: 10; 
Not in file[A]: 6. 

non-U.S. source income? 
Frequency: 
Yes: 11; 
No: 13; 
Not in file[A]: 6. 

U.S. source income? 
Frequency: 
Yes: 5; 
No: 19; 
Not in file[A]: 6. 

Source: GAO analysis of 30 2009 OVDP case files with penalties of $1 
million or greater. 

[A] In some cases, there was insufficient information in the case file 
to answer these questions. 

[B] In some cases, taxpayers disclosed that funds in their offshore 
accounts came from a combination of sources including U.S. and non-U.S. 
sources. 

[End of table] 

[End of section] 

Appendix VIII: Quiet Disclosure Analysis Results: 

Using a methodology that we designed to detect potential quiet 
disclosures, as described in appendix I, we identified the following. 

Potential Quiet Disclosures Individuals: 

* 9,884 Taxpayers Identification Numbers (TIN) = Filed amended returns 
or late returns and FBARs in calendar year 2009 and calendar year 2010: 

- 7,440 of the 9,884 TINs = Had non-zero change in tax liability, of 
which 6,668 TINs had a positive change (i.e., owed taxes based on the 
amended return), in at least one tax year between tax year 2003 and 
tax year 2008. 

- 3,240 of the 9,884 TINs = In calendar year 2009 and calendar year 
2010, filed late or amended returns with FBARs for more than one tax 
year between tax year 2003 and tax year 2008: 

Potential Quiet Disclosures Businesses: 

* 711 Employee Identification Numbers (EIN) = Filed amended returns or 
late filed returns and FBARs in calendar year 2009 and calendar year 
2010: 

- 710 of the 711 EINs = Had non-zero change in tax liability, of which 
427 had a positive change in tax liability (i.e., owed taxes based on 
the amended return) in at least one tax year between tax year 2003 and 
tax year 2008. 

- 146 of the 711 EINs = In calendar year 2009 and calendar year 2010, 
filed late or amended returns with FBARs for more than one tax year 
between tax year 2003 and tax year 2008. 

Potential Quiet Disclosures Individuals and Businesses, Combined 
Totals: 

* 10,595 TINs and EINs = Filed amended returns or late returns and 
FBARs in calendar year 2009 and calendar year 2010. 

- 8,150 of the 10,595 TINs and EINs = Had non-zero change in tax 
liability, of which 7,095 had a positive change in tax liability 
(i.e., owed taxes based on the amended return) in at least one tax 
year between tax year 2003 and tax year 2008. 

- 3,386 of the 10,595 TINs and EINs = In calendar year 2009 and 
calendar year 2010, filed late or amended returns with FBARs for more 
than one tax year between tax year 2003 and tax year 2008. 

- Of the 3,386 TINs and EINs, 94 filed late or amended returns with 
FBARs for all tax years between tax year 2003 and tax year 2008. 

[End of section] 

Appendix IX: Comments from the Internal Revenue Service: 

Department of the Treasury: 
Internal Revenue Service: 
Commissioner: 
Washington, D.C. 20224: 

March 18, 2013: 

Mr. James R. White: 
Director, Tax Issues: 
Strategic Issues Team: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, DC 20548: 

Dear Mr. White: 

Thank you for the opportunity to review and provide comments on your 
draft report entitled, OFFSHORE TAX EVASION: IRS Has Collected 
Billions of Dollars, but May Be Missing Continued Evasion (GAO-13-318, 
Job Code 450914). We appreciate the time the GAO team spent reviewing 
the results of our offshore programs and the processes we used to 
develop them. Despite the challenges we have encountered detecting 
offshore accounts, we are pleased you recognized the overall success 
of our offshore strategy. 

Global tax enforcement is a top priority at IRS, and we have made 
significant progress on multiple fronts, including ground breaking 
international tax agreements and increased cooperation with other 
governments. In addition, the IRS and the Justice Department have 
increased efforts involving criminal investigation of international 
tax evasion. This combination of efforts helped support the 2009 
Offshore Voluntary Disclosure Program (2009 OVDP), the 2011 Offshore 
Voluntary Disclosure Initiative (OVDI), and the ongoing 2012 Offshore 
Voluntary Disclosure Program (2012 OVDP). The goal of these programs 
is to get individuals back into the U.S. tax system and to turn the 
tide against offshore tax evasion. 

The Offshore Voluntary Disclosure Programs have: 

* Given U.S. taxpayers with undisclosed assets or income offshore an 
opportunity to become compliant with the U.S. tax system, pay their 
fair share and avoid potential criminal charges; 

* Been effective in encouraging taxpayers to disclose unreported 
offshore income and so far have resulted in the collection of more 
than $5.5 billion in back taxes, interest, and penalties from 
approximately 38,000 participants; and; 

* Provided the IRS with a wealth of information on various banks and 
advisors assisting people with offshore tax evasion, which the IRS is 
using to continue its international enforcement efforts. 

The IRS agrees with the recommendations in your report. We continue to 
improve the use of data gathered through the offshore voluntary 
disclosure programs. For example, IRS uses the offshore voluntary 
disclosure data to identify noncompliance involving additional banks, 
advisors, and countries. We are also continuing our work to identify 
quiet disclosures. While there are many acceptable reasons for 
taxpayers to submit amended returns outside of the offshore voluntary 
disclosure programs, the IRS agrees that we must continue to explore 
additional methods for effectively identifying quiet disclosures 
submitted to circumvent the program. Since the completion of the GAO 
review, IRS has engaged LB&I Research to begin analyzing GAO 
methodology and quiet disclosure data. 

The IRS response addressing your recommendations is enclosed. If you 
have any questions, please contact David W. Horton, Director, 
International Individual Compliance (IIC), at 630-493-5937. 

Sincerely, 

Signed by: 

Steven T. Miller: 
Acting Commissioner: 

Enclosure: 

The Commissioner of the IRS should take the following actions: 

Recommendation 1: 

Use data gained from the offshore programs to identify and educate 
populations of taxpayers that might not be aware of their tax 
obligations related to offshore income and Foreign Bank and Financial 
Accounts (FBAR) filing requirements. 

Management Response: 

We agree with this recommendation. The IRS recognizes that heightened 
public awareness is critical to reporting compliance, and a number of 
steps have already been taken to educate persons with foreign accounts 
about their filing obligations. For example, information has been 
posted to irs.gov outlining filing obligations, and fact sheets and 
public announcements outlining filing requirements have been issued. 
Additional information has been published through multiple channels, 
including the IRS Twitter account, the IRS Tax Attaches located in 
U.S. consulates and embassies, and the National Public Liaison's 
practitioner e-mail distribution list. 

Recently, the IRS has also established a team to explore efforts that 
can increase assistance and awareness for U.S. taxpayers living 
overseas and other taxpayers facing international issues. This team is 
moving ahead with its work_ In addition, the Director, International 
Individual Compliance will share general information about taxpayer 
problems gathered from the offshore programs with this team and with 
other appropriate functions within IRS (i.e., the International 
Taxpayer Assistance Team and Service wide FBAR Communication Strategy 
Team) for use in education and outreach programs. 

Recommendation 2:
Obtain information that can help IRS test offshore program promotion 
strategies and identify new ones by adding a question to current and 
future programs to determine how participants found out about the 
program. 

Management Response: 

The IRS agrees with this recommendation. The Director, International 
Individual Compliance will explore new means of capturing information 
about how voluntary disclosure participants learned about the program 
and will work to identify additional means of enhancing voluntary 
disclosure program awareness. 

Recommendation 3: 

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. 

Management Response:
The IRS agrees with this recommendation. The Director, International 
Individual Compliance has received the quiet disclosure data gathered 
through the GAO methodology outlined in this report. This data will be 
reviewed and analyzed and appropriate action will be taken including 
examinations, if warranted. The Director, international Individual 
Compliance will work with LB&I's research personnel to explore new 
methodologies for identifying quiet disclosure cases. 

Recommendation 4: 

Conduct an analysis designed to measure the extent that taxpayers are 
reporting existing foreign accounts on the Form 1040, Schedule B, or 
on FBARs for the first time and circumventing some of the taxes, 
interests, and penalties that would otherwise be owed, and take 
appropriate action based on the analysis. 

Management Response: 

The IRS agrees with this recommendation. The IRS is currently 
analyzing filed Forms 8938, Statement of Specified Foreign Financial 
Assets, to identify specific characteristics of the filing population 
and to assess filing behaviors indicating potential compliance issues. 
This analysis includes a statistical analysis of filers (e.g., income, 
age, filing status) and several measures of year-to-year filing 
behavior (e.g., taxable income changes, FBAR filing history, and 
Schedule B reporting patterns). This data will also be evaluated 
against other indicators of compliance risk. 

The Director, international Individual Compliance will work with LB&I 
research personnel to explore means of analyzing Form 1040, Schedule 
B, and FBAR filings to identify first-time FBAR filers who may be 
improperly reporting offshore accounts as new accounts. The IRS will 
take the necessary actions to address any identified noncompliance 
including examinations, if warranted. 

[End of section] 

Appendix X: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

James R. White, (202) 512-9110 or whitej@gao.gov. 

Staff Acknowledgments: 

In addition to the contact named above, Mark Abraham, Tara Carter 
(Analyst-In-Charge), Andrew Ching, Leon Green, Mark Kehoe, and Libby 
Mixon (Assistant Director) made contributions to the report. Jeff 
Arkin, Chuck Fox, Robert Gebhart, George Guttman, Brian James, Sarah 
McGrath, Donna Miller, John Mingus, Ed Nannenhorn, Karen O'Conor, 
Robert Robinson, Cynthia Saunders, Andrew Stephens, Wayne Turowski, 
Jim Ungvarsky, and John Zombro provide key assistance. 

[End of section] 

Footnotes: 

[1] For purposes of this report, offshore refers to any foreign 
jurisdiction outside of the United States. 

[2] U.S. Senate Committee on Finance, "Schemes, Scams and Cons: The 
IRS Strikes Back," hearing on April 11, 2002. 

[3] U.S. financial institutions are required to report account 
earnings to IRS. For years, IRS has compared this information to the 
information taxpayers report on their tax returns to ensure accuracy. 

[4] The first three programs occurred in 2003, 2009, and 2011. The 
fourth program, which started in 2012, remains open. 

[5] FinCEN is a bureau of the U.S. Department of the Treasury. 
FinCEN's mission is to enhance the integrity of the financial systems 
by facilitating the detection and deterrence of financial crime. 
FinCEN carries out its mission by receiving and maintaining financial 
transactions data; analyzing and disseminating that data for law 
enforcement purposes and building global cooperation with counterpart 
organizations in other countries and with international bodies. The 
Bank Secrecy Act requires that U.S. taxpayers file FBARs if they have 
a financial interest in or signature authority over offshore accounts 
with an aggregate value exceeding $10,000, a threshold set by the 
Secretary of the Treasury. 31 U.S.C. § 5314; 31 C.F.R. § 1010.350. 

[6] 26 U.S.C. § 6049. An information return is a return filed with the 
IRS by a person or other entity to report some economic information 
other than the tax liability of the filing person or entity. 

[7] Subtitle A of title V of the Hiring Incentives to Restore 
Employment Act is commonly referred to as FATCA. Pub. L. No. 111-147, 
124 Stat. 71, 97-117 (2010). We issued a report on IRS's 
implementation of FATCA in April 2012. See GAO, Foreign Account 
Reporting Requirements: IRS Needs to Further Develop Risk, Compliance, 
and Cost Plans, [hyperlink, http://www.gao.gov/products/GAO-12-484] 
(Washington, D.C.: April 16, 2012). 

[8] The Internal Revenue Code provides whistleblowers with a 
significant financial incentive to report noncompliance. It provides 
for awards up to 30 percent of the collected proceeds that arise from 
the whistleblower's information. 26 U.S.C. § 7623. 

[9] Although not publicly confirmed by IRS, attorneys for the UBS 
whistleblower reported that he was awarded $104 million. 

[10] A John Doe summons is a court ordered summons that allows IRS to 
seek information about all taxpayers in a certain group, such as those 
with accounts at a certain financial institution, without knowing 
individual identities beforehand. The law authorizing a John Doe 
summons requires IRS to establish in a federal court proceeding that 
the summons relates to the investigation of a particular person or 
ascertainable group or class of persons; there is a reasonable basis 
to believe that the targeted person or group may fail or may have 
failed to comply with tax laws; and that the information is not 
readily available from other sources. 26 U.S.C. § 7609(f). 

[11] In the 2009 OVDP, the application letter was optional, and 
taxpayers could provide alternate documentation containing similar 
information; the letter was required for subsequent programs. 

[12] A taxpayer who willfully fails to properly file an FBAR may be 
subject to a penalty equal to the greater of $100,000 or 50 percent of 
the balance in the account at the time of the violation, for each year 
of violation. Willful violations may also be subject to criminal 
penalties. For a full list of potential penalties for taxpayers with 
unreported offshore accounts or activities who do not participate in 
an offshore program see Internal Revenue Service, "Voluntary 
Disclosure: Questions and Answers," accessed March 13, 2013, 
[hyperlink, http://www.irs.gov/uac/Voluntary-Disclosure:-Questions-and-
Answers], Q15]. 

[13] The offshore penalty is not a penalty established by statute that 
taxpayers with undisclosed foreign accounts are required to pay by 
law. It is an amount voluntary participants in the offshore programs 
agree to pay in exchange for the benefits associated with 
participation in those programs, and its collection is authorized by 
the IRS's settlement authority conferred in IRC sections 7121 and 7122. 

[14] We identified 19,337 total participants in IRS's 2009 OVDP. Those 
participants had 10,439 closed cases, as of November 29, 2012, that we 
could analyze. The 19,337 participants we identified as participating 
in IRS's 2009 OVDP differs from the number released publicly by IRS, 
which has been 15,000. The number released publicly by IRS reflects 
the total applicants accepted into OVDP by CI, while our figure 
represents the total number of taxpayers reviewed within the 2009 OVDP 
civil penalty structure, meaning that we added some spouses and other 
taxpayers that were assessed offshore penalties. See appendix I for 
more information on our methodology. Of the 19,337 participants that 
we identified, 200 (or 1 percent) were businesses. See appendix V for 
characteristics of these businesses. 

[15] Throughout the rest of our report, we use an updated November 29, 
2012, figure. As of that date, 56 percent of the total $2.8 billion in 
offshore penalties assessed were from cases with penalties of $1 
million or greater. 

[16] The 95 percent confidence interval for the estimated 70 percent 
of taxpayers receiving large penalties with accounts at Swiss bank UBS 
is 51 percent to 85 percent. See appendix I for more information on 
our scope and methodology and appendix VII for more counts by case 
file. 

[17] Under the U.S. worldwide tax system, U.S. citizens and residents 
generally must report income, wherever it is earned, including income 
from foreign bank accounts, to the IRS. 

[18] The 95 percent confidence interval for the estimated 47 percent 
of taxpayers receiving large penalties who inherited offshore accounts 
is 29 percent to 65 percent. 

[19] The 95 percent confidence interval for the estimated 40 percent 
of taxpayers disclosing the use of complex arrangements to indirectly 
own or manage their offshore accounts ranged from 23 percent to 59 
percent. 

[20] For a list of tax havens and financial privacy jurisdictions 
sourced to the Organization for Economic Co-operation and Development, 
the National Bureau of Economic Research and a U.S. District Court 
order granting leave for IRS to serve a John Doe summons, see Table 1 
in GAO, International Taxation: Large U.S. Corporations and Federal 
Contractors with Subsidiaries in Jurisdictions Listed as Tax Havens or 
Financial Privacy Jurisdictions, [hyperlink, 
http://www.gao.gov/products/GAO-09-157] (Washington, D.C.: Dec. 18, 
2008). 

[21] Generally, a foreign corporation is considered to be a PFIC if 
certain percentages of the corporation's income or assets are passive. 
26 U.S.C. § 1297. 

[22] Joint Committee on Taxation, General Explanation of the Tax 
Reform Act of 1986, JCS-10-87, May 4, 1987. Also see GAO, Cayman 
Islands: Review of Cayman Islands and U.S. Laws Applicable to U.S. 
Persons' Financial Activity in the Cayman Islands, [hyperlink, 
http://www.gao.gov/products/GAO-08-1028SP] an E-supplement to 
[hyperlink, http://www.gao.gov/products/GAO-08-778] (Washington, D.C.: 
July 24, 2008). 

[23] Internal Revenue Service, "FY 2011 Congressional Budget 
Submission," February 1, 2010. 

[24] According to IRS officials, some foreign banks have facilitated 
U.S. taxpayers in setting up merchant accounts offshore, in countries 
other than their countries of business, to hide income. 

[25] Additional required documents can be found on IRS's website, 
"Offshore Voluntary Disclosure Program Submission Requirements," 
[hyperlink, http://www.irs.gov/Individuals/International-
Taxpayers/Offshore-Voluntary-Disclosure-Program-Submission-
Requirements], accessed February 8, 2013. 

[26] In order to use the streamlined filing procedures, taxpayers must 
file amended or late tax returns for the previous three years, and 
file any delinquent FBARs for the previous six years. If taxpayers 
self-determine they are a low compliance risk, they can submit returns 
through these new procedures, and not through the current, ongoing 
offshore voluntary disclosure program. If IRS later determines any of 
these taxpayers have a higher compliance risk, the taxpayers are 
subject to a more thorough review, potentially subject to an audit 
outside of the offshore program, and subject to potentially steeper 
FBAR penalties. According to IRS officials, these new procedures will 
assist many U.S. taxpayers who are nonresident, nonfilers with 
relatively low additional taxes owed, and taxpayers with certain 
foreign retirement accounts. 

[27] GAO, Reporting Foreign Accounts to IRS: Extent of Duplication Not 
Currently Known, but Requirements Can Be Clarified, [hyperlink, 
http://www.gao.gov/products/GAO-12-403] (Washington, D.C.: Feb. 28, 
2012). 

[28] Only an IRS examination can determine actual quiet disclosures 
and there are many reasons why a potential quiet disclosure may turn 
out to be something else. According to IRS, these include taxpayers 
who had legally paid taxes on their offshore income, but had not 
previously filed FBARs, and who were paying additional taxes with 
their amended returns for reasons unrelated to the offshore accounts 
and newly filed FBARs. 

[29] Internal Revenue Service, "2011 Offshore Voluntary Disclosure 
Initiative Frequently Asked Questions and Answers," accessed February 
5, 2013, [hyperlink, http://www.irs.gov/Businesses/International-
Businesses/2011-Offshore-Voluntary-Disclosure-Initiative-Frequently-
Asked-Questions-and-Answers]. 

[30] Unlike the other sidebars presented in this report, this is not 
drawn from an amalgamation of multiple cases in our case file review, 
but from publicly available information on one specific case. 

[31] A secrecy jurisdiction refers to a jurisdiction, or country, that 
offers financial secrecy laws in an effort to attract investment from 
outside its borders. 

[32] In a similar situation, taxpayers might be filing the new IRS 
Form 8938 for offshore accounts that are not in fact new, without 
fulfilling their FBAR filing requirement, if applicable. IRS Form 8938 
resulted from a FATCA provision requiring certain taxpayers, beginning 
in 2012, to report foreign financial accounts. 

[33] See Internal Revenue Service, "Voluntary Disclosure: Questions 
and Answers," accessed February 8, 2013, [hyperlink, 
http://www.irs.gov/uac/Voluntary-Disclosure:-Questions-and-Answers], 
Q9. 

[34] FBAR forms are processed by the IRS, but FBAR information is 
managed by Treasury's FinCEN. 

[35] This population includes 200 participants with an Employer 
Identification Number (EIN), which IRS uses to identify businesses, 
instead of an Individual Tax Identification Number or Social Security 
Number. Since these business entities represented less than 1 percent 
of the total OVDP participants identified, our use of the term "OVDP 
participants" in this report generally refers to individual taxpayers 
participating in the program. 

[36] We focused on cases with an OVDP penalty of $1 million or greater 
because these "large penalty" cases accounted for about half of the 
total OVDP penalty dollars assessed. At the time we selected our 
sample of 30 cases in April 2012, we had identified a total population 
of 378 "large penalty" cases that were closed as of March 30, 2012. 

[37] This included individuals or businesses who filed one or more 
amended or late returns for any of the six tax years included in the 
2009 OVDP (tax year 2003 through tax year 2008), and whose amended or 
late returns were posted in IRS's Individual Master File or Business 
Master File systems in calendar years 2009 and 2010. Taxpayers could 
apply to the 2009 OVDP program from March 23 through October 15, 2009, 
but they could still file amended returns after this period. We 
discussed our intended use of this data along with our methodology 
with IRS officials. They agreed with our use of the data and our 
methodology. 

[38] We testified on IRS's 2003 offshore voluntary compliance program 
in 2009. See GAO, Tax Compliance: Offshore Financial Activity Creates 
Enforcement Issues for IRS, [hyperlink, 
http://www.gao.gov/products/GAO-09-478T] (Washington, D.C.: Mar. 17, 
2009). 

[39] The Internal Revenue Code provides whistleblowers with a 
significant financial incentive to report noncompliance. It provides 
for awards up to 30 percent of the collected proceeds that arise from 
the whistleblower's information. 26 U.S.C. § 7623. A whistleblower is 
someone who reports information on potential tax problems, such as 
fraud, to the IRS. Although not publicly confirmed by IRS, attorneys 
for the UBS whistleblower reported that he was awarded $104 million. 
For additional information on tax whistleblowers, see GAO, Tax 
Whistleblowers: Incomplete Data Hinders IRS's Ability to Manage Claim 
Processing Time and Enhance External Communication, [hyperlink, 
http://www.gao.gov/products/GAO-11-683] (Washington, D.C.: Aug. 10, 
2011). 

[End of section] 

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To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 
Website: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]; 
E-mail: fraudnet@gao.gov; 
Automated answering system: (800) 424-5454 or (202) 512-7470. 

Congressional Relations: 

Katherine Siggerud, Managing Director, siggerudk@gao.gov: 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, DC 20548. 

Public Affairs: 
Chuck Young, Managing Director, youngc1@gao.gov: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, DC 20548. 

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