In an effort to limit tax evasion, the IRS has been making agreements with various countries under the Foreign Account Tax Compliance Act (FATCA). So far, the increased transparency has led the IRS to collect approximately $6.5 billion in taxes, interest and penalties from taxpayers who voluntarily disclosed their hidden assets. With the Offshore Voluntary Disclosure Program (OVDP) and FATCA, compliance is expected to grow drastically. Since 2009, more than 100 criminal indictments have been filed by federal prosecutors.
Even though the IRS has been aggressively pursuing tax evasion, for U.S. citizens living overseas, the implementation of FATCA has brought nothing except worry. Due to the increased burden of complying with the U.S. tax laws and the risk of incurring harsh penalties, a record number of U.S. citizens living overseas renounced their U.S. citizenship.
Now, the IRS is considering relaxing penalties for accidental tax evasion to ease their pain. That may reduce the problems of Americans living overseas, but the decision to judge whether evasion of taxes was intentional or not rests solely with the IRS. On the other hand, those U.S. citizens who choose not to report their assets to the IRS may have to face 50% in penalties of the balance in their accounts under the new tax rule.
If the financial institution in which a taxpayer has an undisclosed account is being investigated by the U.S. authorities, the taxpayer will need to pay heavy penalties of up to 50% for remaining in non-compliance. The U.S. authorities have investigated banks in Switzerland, which were suspected of allowing U.S. citizens to evade taxes in the U.S. by hiding their income and assets.
Americans living overseas must inform themselves of the various tax laws that affect them and ensure that they are in compliance to avoid the harsh penalties for non-compliance. Those that have undisclosed income and/or assets may use the OVDP to gain back compliance and pay less in penalties.
Labels: Back Taxes, IRS, Tax Code, Tax Filing, Tax News, Taxpayers