Tax News

CCH (cch.taxgroup.com) reports:

  The Hawaii Department of Taxation has issued a Tax Information Release (TIR) announcing a concurrent voluntary disclosure program for corporate and personal income taxpayers participating in the current Internal Revenue Service (IRS) voluntary disclosure program for undeclared offshore bank account income.

  In March 2009, the IRS announced guidelines for taxpayers making voluntary disclosures of unreported income generated through undeclared offshore bank accounts located in countries outside the United States. The IRS encouraged taxpayers with undisclosed foreign accounts or entities to make a voluntary disclosure to avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. In furtherance of the IRS's efforts, the Department of Taxation is likewise encouraging taxpayers with Hawaii income sourced from undeclared foreign bank accounts to make a voluntary disclosure with the state. Any person submitting a voluntary disclosure with the state pursuant to the TIR will generally not be referred for criminal prosecution or be assessed any civil penalties on any timely and complete submissions. In order for a voluntary disclosure with the state to be timely, the taxpayer must make a timely voluntary disclosure with the IRS pursuant to its offshore undeclared bank account voluntary disclosure guidelines and must make contact with the department's Offshore Voluntary Disclosure Coordinator by the same deadline. As of the date of issuance of the TIR, the deadline for submissions is September 23, 2009.

  Any taxpayer making a voluntary disclosure of undeclared offshore bank account income pursuant to the IRS guidelines that would like to also make a voluntary disclosure with the state should initiate contact with the Department of Taxation by contacting the Offshore Voluntary Disclosure Coordinator at (808) 587-1603 in order to determine whether the taxpayer is eligible for the Hawaii voluntary disclosure program. The coordinator will request the identity of the taxpayer and determine whether the taxpayer is under civil examination or criminal investigation. Persons under civil examination or criminal investigation are not eligible to participate in the Hawaii program; all other taxpayers are eligible. Taxpayers eligible for the Hawaii program must submit the following: a cover letter identifying the taxpayer and the taxpayer's representative and also stating that the voluntary disclosure is being made to resolve unreported offshore Hawaii taxable income pursuant to the TIR and IRS guidelines and that none of the unreported offshore taxable income being reported is illegal source income; a copy of the voluntary disclosure package submitted to the IRS; amended returns for any taxable year for which the statute of limitations remains open, with the marking "OFFSHORE VOLUNTARY DISCLOSURE" on the top of the first page of the return; and full payment of tax and interest due and payable at the time of the submission.

  Beginning October 1, 2009, any taxpayer subsequently audited by the Department of Taxation (or by the IRS where the IRS adjusts for unreported foreign bank account income) that includes adjustments to Hawaii taxable income due to unreported foreign bank account income will be subject to all civil penalties available by law, including the 50% civil fraud, 25% negligence, and 20% substantial understatement penalties. Furthermore, pursuant to Act 166, Laws 2009, taxpayers found to have unreported income from foreign bank accounts will be assessed unpaid taxes and penalties on up to six taxable years where unreported income constitutes 25% or more of the amount stated on a return. Also, the likelihood of referral for criminal investigation increases for those taxpayers that fail to submit a voluntary disclosure and are later selected for examination.

  Persons needing additional information regarding this TIR may contact the Department of Taxation at (808) 587-1577.

Tax Information Release No. 2009-03 , Hawaii Department of Taxation, August 6, 2009, ¶200-757

  Other References:

  Explanations at ¶89-186