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, Newsweek reported.
Call it the advent of the "I was clueless" defense.
The IRS said 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 used to consider all tax deficiencies to be the work of tax cheats, but it is now distinguishing between criminal tax evasion -- done knowingly and willfully -- and noncriminal cluelessness.
"Finally, the IRS recognizes that not everyone with a foreign account is a criminal," tax lawyer and former prosecutor Jeffrey Neiman told Newsweek.