The United States raised over $2.7 billion from running two well-publicized tax “amnesties” during 2009 and 2011 aimed at U.S. citizens who held undisclosed monies outside of the United States. Several thousand folks came clean through these disclosure initiatives; many of them had tear-jerking stories, but ultimately they agreed to pay taxes and penalties (after appropriate negotiations with tax authorities) because that was what the law required. Indeed, the Treasury General for Tax Administration (TIGTA) has agreed that these programs were fair and well administered.
The Global Story
At a global level, the Organisation for Economic Co-Operation and Development recently announced that similar initiatives had been launched in over 20 countries and used by over 100,000 taxpayers globally, raising more than €14 billion in additional tax and penalties overall. Amnesties aimed at collecting tax on money and assets held outside of a home country are clearly fabulous at raising revenues.
The United States
By a stroke of genius, the United States collects penalties both for completing income tax returns incorrectly and – separately – for failure to disclose non-U.S. assets. U.S. citizens living within the United States and elsewhere are subject to both annual worldwide income tax reporting and annual worldwide information reporting of non-U.S. financial assets.
The Internal Revenue Service and Treasury have recently published an updated version of the Report of Foreign Bank and Financial Accounts form (Form TD F 90-22.1), a new draft Statement of Foreign Financial Assets (Form 8938), a new internal manual on handling appeals against offshore account penalties and launched a new IRS helpline. Overall, these recent changes provide clear signals that the IRS is serious about showing it provided clear guidance about these reporting obligations. It will doubtless be much more difficult to argue in future cases that a taxpayer had reasonable cause for filing late. Given that non-willful penalties for FBAR forms can be up to $10,000 per violation (that is, per account, per year), the IRS could collect more penalties to add substantially to the $2.7 billion already collected.
With the Foreign Account Tax Compliance Act (FATCA) taking effect in 2014, it’s inevitable that the IRS will find more U.S. citizens who have financial accounts outside of the United States. The Taxpayer Advocate estimates that there are 7 million Americans living overseas but just 462,340 filing returns from foreign addresses. Somewhere, somehow there appear to be large numbers of U.S. citizens living abroad who aren’t filing all required income tax and information returns. In 2014, FATCA will provide names and addresses of many such people to the IRS.
Amnesties collect huge amounts of money. So it seems likely that the IRS may offer one new “amnesty” aimed at Americans living overseas. When this will occur remains unknown, but what’s certain is that anyone currently “under the radar” won’t be able to hide for very much longer, so taking professional advice today must be prudent.