IRS program can help those with hidden foreign assets or income

If you are an American citizen, you must file a U.S. tax return, even if you live abroad and keep all your money overseas. If you are a U.S. citizen living in American, you must inform the IRS of any foreign accounts.

Despite these requirements, foreign assets often go overlooked by the IRS — for a time, at least. Citizens who are caught hiding foreign assets or income can face steep penalties, and even criminal charges for tax evasion.

On June 18, the IRS announced a new program under which most penalties for undisclosed foreign income or assets will be waived if taxpayers can show that they did not engage in purposeful evasion of taxes. The penalties for Americans living abroad will be waived if they come forward, file tax returns for the preceding three years and pay any back taxes.

American taxpayers living at home with undisclosed foreign accounts can avoid stiffer penalties by making the IRS aware of the offshore accounts and paying five percent of the balance of the foreign accounts. Again, these accountholders must show that they did not engage in intentional evasion.

Of course, sometimes tax evasion is willful. It is usually better to come forward even about willful tax evasion — with the right legal help by your side, that is — than it is to wait to get caught. The IRS is in the midst of making modifications to an existing program that allows willful tax evaders to avoid criminal prosecution if they come forward and pay stiff penalties.

The IRS has been cracking down in recent years on U.S. taxpayers with hidden assets or income abroad. Since the crackdown began, the IRS says that more than 45,000 taxpayers have come forward to pay $6.5 billion in owed taxes, interest and penalties. Starting in 2015, it will become even harder to hide assets overseas, as pursuant to the stipulations of a 2010 law, banks in approximately 70 foreign countries will begin to supply the IRS with information about American account holders.

Source: PBS, "IRS will waive tax evasion penalties — if you can prove it was an accident," Stephen Ohlemacher, June 18, 2014

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