Frank A. Rubino, ESQ.

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Tax crime policy changes serve up amnesty to expat workers

In most criminal cases, "I did not know about that law" is considered an unacceptable defense. That looks like it will change with the advent of new tax crime rules, however, which could soften penalties for taxpayers accused of tax evasion with secret offshore accounts. Financial and legal consequences are expected to be eased by changes within the Internal Revenue Service that would apply to the millions of expatriate Americans who live and work overseas.

The U.S. is one of just two nations worldwide to tax their citizens, no matter where they live or do business. This unpopular policy has made tax evasion more enticing to those who earn their money abroad, according to many IRS and government leaders.

These expats, many of whom hail from Florida, will be allowed to step forward as part of an amnesty program designed to identify and expunge secret foreign accounts. Those people who choose to settle their American tax bills will only be charged for back taxes and interest -- generally, those taxpayers face a 27.5 percent penalty because of the failure to file taxes. The changes are part of a Justice Department initiative to prevent Swiss banks from selling tax-dodging services to the wealthiest Americans.

Government officials say they used to consider every tax deficiency as the work of someone who was intentionally dodging their payments. However, it seems as though a large number of expats never knew they were supposed to be paying certain types of taxes. The new rules will allow officials to show leniency toward those with foreign accounts who did not realize that they were responsible for a specific tax burden.

This important differentiation in the types of criminal tax violations is sure to help scores of expats who were facing financial consequences because of back taxes owed. Such amnesty programs may prevent these unintentional violators from unnecessary aggressive prosecution. Taxpayers who enter the amnesty program may be shielded entirely from criminal prosecution for tax evasion.

Source: Newsweek, "IRS Will Now Accept an ‘I Was Clueless’ Defense for Offshore Tax Evaders" Lynnley Browning, Jun. 20, 2014

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