IRS TAX AMNESTY
Earlier this year, the Internal Revenue Service had in place a tax amnesty. In former times, a tax amnesty might have signified forgiveness of taxes. Tax debtors found their obligations to the governing authority wiped clean. The populace then felt good about their governors and, if anything, more readily paid up on imposed taxes.
The IRS wants to find Americans who have squirreled away their wealth in hidden accounts so as to tax the earnings they are convinced have long been undeclared. Indeed, the US government estimates that the treasury is losing $10b a year in tax revenues due to this sort of failure to report. And given that the government, despite an incomprehensible budget deficit, has obliged itself to continue financing wars in Afghanistan and Iraq, to pay Social Security retirement pensions to the aging baby-boomer generation, and to legislate a national health care system, the business of tax collection was never higher on the agendas of tax collectors.
Accordingly on 27 March 2009, the IRS announced a six month amnesty for Americans to voluntarily report their worldwide income, gains, bank accounts, trusts and other secreted entities. Given that only about one-third of American expatriates file annual tax returns and some 20% file the required foreign financial holdings report known as FBAR, the IRS has legislated this six month window of opportunity for anyone heretofore under the radar screen to emerge from obscurity.
Responding to this window, a representative of American Citizens Abroad had this to say: ‘The IRS this time apparently thinks it is offering us (Americans abroad) a tempting amnesty. But if you look more closely, it is rather more akin to urging us to commit financial suicide.’ Arguing that IRS can impose significant penalties for both unpaid income taxes up to six years and for failure to file FBAR, he warned that complying Americans can be economically destroyed.
The six month amnesty expired on 23 September. But IRS has just extended the deadline to 15 October. The amnesty protects Americans who come clean from possible criminal prosecution as well as substantial civil and fraud penalties.
The question noncompliant Americans abroad have to ask in an age of electronic technology and tax treaties, and in spite of portentous advice, is whether they are willing to continue rolling the dice.