For plugged-in workers, the web offers the ability to work from anywhere – including other countries. Maybe you took advantage of this to settle in a sunny locale or exciting European city for a period of time, and maybe you weren’t entirely honest with Uncle Sam about the money you made while abroad, stashing some cash in a foreign bank account or investment.
If you’re living with a bit of anxiety that your tax naughtiness might be uncovered and cost you, now is a good time to do something about it. The IRS is offering an amnesty. Inform them of your assets before Aug. 31 and you’ll pay a lower penalty fee of 12.5 percent for up to $75,000 or 25 percent if you’ve got more than that (on the odd chance you inherited a foreign account and never withdrew anything, the penalty will be only five percent).
If you’re discovered outside the amnesty program, the penalties “are draconian,” warns Harry Miller, a partner at Burns & Levinson, and expert on international tax issues. “If the failure to disclose is determined to be willful, then the civil penalty for each violation is up to the greater of $100,000 or 50 percent of the value of the undisclosed account. Accounts can be decimated.”
Who should consider taking advantage of the program? Miller recommends that “any U.S. citizen or U.S. resident with investments or accounts outside of the U.S. who has failed to disclose these accounts on annual information returns required by the U.S. government, or who has failed to include the income from such accounts on their personal U.S. income tax return, should consider taking advantage” of the amnesty program. But he notes it’s not for everybody:
There are significant tax costs involved with coming clean. In most cases the cost to be paid will be very low in comparison with the potential costs of being discovered without having participated in the program. But anybody interested in this program needs to know what the potential tax cost and reduced penalties will be before getting into it.
For those who have so far avoided detection and are considering risking it for a while longer, Miller warns that a combination of terrorism-related scrutiny of international accounts and a recession-related drive to increase revenue without increasing tax rates will make the government more likely to discover you going forward. The IRS “has hired hundreds of new agents in Europe and Asia specifically in order to beef up their compliance enforcement efforts,” says Miller, who warns the risk is greatest in those countries with tax treaties with the U.S.
And while this amnesty is a repeat of a successful 2009 program, which convinced 15,000 tax dodgers to turn themselves in, “it is unlikely that there will be another similar program, and certainly nobody should count on such a program,” says Miller.
So what do you do if you’re thinking of taking advantage of the amnesty? Your regular accountant may not be able to handle the matter, as this is a highly specialized area of tax law, so find someone experienced with the 2011 Offshore Voluntary Disclosure Initiative. And do it quickly. Paperwork must be filed and penalties paid by the end of August.