Friday, June 20, 2014

IRS Will Now Accept an ‘I Was Clueless’ Defense for Offshore Tax Evaders - As the Justice Department winds down its eight-year crusade against Swiss banks selling offshore tax-dodging services to wealthy Americans, the Internal Revenue Service is offering its own parting gift: softer penalties for taxpayers who come out of the woodwork to disclose their secret accounts.

Call it the advent of the “I was clueless” defense.

The IRS announced Wednesday it would ease the financial and legal pain for the estimated 6 million expatriate Americans who live and work abroad, many of whom don’t know that they must pay U.S. taxes on their foreign income. People who come forward under an amnesty program to disclose their foreign accounts and settle their U.S. tax bills won’t be charged any penalties and will simply owe back taxes and interest. Previously, they would have owed a penalty of 27.5 percent, computed as a percentage of each undisclosed foreign account.

The IRS also said it is eliminating a requirement that expats wanting to qualify for the amnesty program had to owe a maximum of $1,500 in unpaid taxes per year, a small amount that had blocked many would-be filers.

The agency extended an olive branch to Americans living in the U.S. as well, effectively saying that the “I didn’t know” argument would now be available to some Americans with undisclosed offshore accounts who live in the United States. People who come forward now will owe back taxes, interest and a reduced “miscellaneous offshore penalty” equal to 5 percent of their undisclosed foreign financial assets. Previously, they would have faced a 27.5 percent penalty.

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