Newspaper article International New York Times

I.R.S. Eases Some Rules for Taxpayers outside U.S. ; Measures to Crack Down on Tax Cheats Described as 'Too Harsh' by Official

Newspaper article International New York Times

I.R.S. Eases Some Rules for Taxpayers outside U.S. ; Measures to Crack Down on Tax Cheats Described as 'Too Harsh' by Official

Article excerpt

The agency said it would lower or eliminate some fines for failing to disclose offshore accounts, while tightening other requirements.

The Internal Revenue Service is revising its rules to fine-tune a crackdown on tax cheats overseas so that it does not unduly burden small taxpayers guilty only of an innocent oversight.

The agency said it would lower or eliminate some fines for failing to disclose offshore accounts, while tightening other requirements.

"A compliance regime that is too harsh won't net the desired result," the I.R.S. commissioner, John Koskinen, said in a statement on Wednesday.

He acknowledged that the changes to the agency's offshore voluntary compliance programs, which provide a path for people to make things right, were partly a response to feedback from angry taxpayers and to sharp criticism from the agency's own taxpayer advocate.

Overseas tax-collection efforts, drastically increased by the agency in recent years, have drawn intense criticism from overseas Americans and the groups representing them. They say the pressure is so great and potential penalties so high that growing numbers of expatriates have renounced their citizenship.

Nina E. Olson, the taxpayer advocate, wrote in her latest annual report that the voluntary disclosure programs, while designed for "bad actors," instead "burdened 'benign actors' who inadvertently violated the rules." Taken together with other tightened rules, she wrote, there was a potential for "draconian penalties."

The changes to the agency's offshore voluntary compliance programs -- programs that the I.R.S. says have brought in $6.5 billion in revenue -- have hit small taxpayers disproportionately, according to Ms. Olson's report.

She found that the median penalty in 2009 for taxpayers with the smallest accounts was nearly six times the average unpaid tax, double the rate for those with the largest accounts. "Thus," she wrote, "the I.R.S. has extracted the most extreme penalties from unrepresented taxpayers with small accounts who were voluntarily trying to correct a mistake. …

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