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Guest post by: Carl Moore Become an Author

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American expats and dual citizens have told stories of stress, fear and attempts to do the right thing before the latest voluntary disclosure window closed in September. These people included U.S. citizens married to foreigners who'd left thy country decades ago, retirees whose lives spanned multiple countries, Vietnam War draft-dodgers who'd long since received amnesty and dual-taxpayers trying to do their U.S. taxes themselves from places where accountants versed in U.S. tax obligations were a rarity.

IN A BIG SEA

The IRS said in past statements that 30,000 people have come forward during the tax amnesties so far, and that it collected a total of $2.2 billion from those who participated in the 2009 program, and an additional $500 million as of September 15 (a number that does not include penalties).

But this may just be the tip of the iceberg. There are between five and six million Americans living abroad, and another 39 million immigrants in the U.S. (who face similar issues with overseas disclosure if they have accounts back home). Yet, in 2009, there were just 534,043 FBARs filed, according to a report by the Treasury Inspector General for Tax Administration.

In a recent article Mark Matthews, a tax partner at Morgan Lewis & Bockius in Washington, D.C. wrote that they saw few of the stereotypical offshore tax cheats in their practices. Instead, many had inherited foreign assets from foreign-born parents and other relatives (during the first program) or they had lived abroad for years (in the second). "They built the program for criminals, and they just can't figure out how to deal with all these innocents who've been caught up in it," says Matthews, a former top IRS official. "A program that is a pretty good deal for a criminal is devastating for someone who didn't really do anything wrong."'

Two voluntary disclosure programs offered amnesty from criminal prosecution, but the monetary penalties were steep. In the latest window, the penalty for failing to report foreign accounts was generally 25 percent of the highest aggregate balance between 2003 and 2010, plus an additional penalty of $10,000 for each FBAR not filed. The FBAR filing is required for any U.S. person with at least $10,000 in a foreign financial account. Even the IRS may realize there's a problem. There is now a special 5 percent penalty for those who owed little or no tax, and an opt-out mechanism for those believe they might get a better deal outside the official voluntary-disclosure program.

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