The U.S. has collected more than $5 billion resulting from taxpayers’ disclosures of offshore accounts, the Internal Revenue Service said today.
The IRS also announced new procedures to help some U.S. taxpayers living abroad catch up on their requirements to file returns. That includes people who recently learned that they are subject to the U.S. tax code.
“We’re going to crack down on people who are willfully hiding assets overseas and not meeting their obligations,” IRS Commissioner Douglas Shulman said in a telephone interview today. “And if there are people who are caught up in this who we can help get back in the system in a seamless way, then we’re going to do that.”
Taxpayers with relatively simple returns who owe $1,500 or less for each of the past few years will be eligible for the program, which starts Sept. 1.
The IRS announcement recognizes anger building among U.S. taxpayers around the world because of the government’s enforcement efforts, said Charles Bruce, tax counsel of American Citizens Abroad, an advocacy group.
‘Lance the Boil’
“They need to lance the boil a bit and let off some of the bad feelings, so they’re doing something,” said Bruce, who said the changes don’t go far enough. “This program, the way it exists and the way it’s slightly amended, is too scary. They’ve scared away people from getting into compliance and this is going to continue to scare people.”
Non-resident taxpayers disclosing their information to the IRS will be required to file three years of past tax returns and other paperwork showing their account holdings for six years.
The U.S., unlike most other countries, requires its citizens to pay U.S. taxes on the income they earn around the world. They can receive tax credits for payments to other governments.
The IRS news release said some taxpayers have recently become aware of their obligations. That can happen to people who didn’t realize that they became U.S. citizens because they were born in the country.
Such situations are common, said Bruce, mentioning a client who is a physicist in Switzerland and hadn’t been filing the right paperwork based on her understanding of past conversations with an embassy official.
“It’s not in their minds, nor is there an H&R Block around the corner telling them they have to do this,” said Bruce, who practices in Washington and in Lausanne, Switzerland.
Since 2009, the IRS has run a series of programs encouraging U.S. taxpayers to declare their foreign accounts. Participants paid back taxes and penalties and, in many cases, avoided prosecution.
Taxpayers have made almost 35,000 disclosures since the voluntary programs began in 2009, Shulman said. As of January, the IRS had reported receiving $4.4 billion.
Shulman said he thinks the IRS efforts over the past few years have made it harder for U.S. citizens to find accountants, lawyers and advisers to help them hide money outside of the country. The broader goal, he said, is to change the risk calculus for the next generation of taxpayers.
“I think we’ve put a huge dent in this,” he said. “There’s still money out there.”
Simultaneously, the IRS and the Justice Department have been pursuing criminal cases against U.S. taxpayers with undeclared assets around the world. In many cases, the U.S. has used data on promoters, advisers and bankers that it gleaned from voluntary disclosures.
“We get an incredible amount of information,” Shulman said.
Also, in 2010, Congress passed a law requiring non-U.S. financial institutions to provide information to the IRS about their U.S. accountholders. Major provisions of that law will take effect in 2013, and some banks and wealth-management firms around the world have said they are turning away business from U.S. customers.
The IRS also that the voluntary disclosure program will no longer be open to to taxpayers who challenge foreign governments over the disclosure of their information and don’t tell the U.S. Department of Justice as required.
That has been happening in Switzerland, said Barbara Kaplan, an attorney at Greenberg Traurig LLP in New York.
To discourage taxpayers from waiting as late as possible to come forward, Shulman said the IRS may close off the voluntary disclosure option for individual taxpayers after it takes action relating to their financial institutions.