The IRS Wants to Be Your Friend, Or Else

The Internal Revenue Service has been squeezing wealthy Americans who secretly stashed money abroad to fess up and pay what they owe in taxes. That was the stick. Now the IRS, hoping to bring in more tax evaders, is dangling a carrot to ferret out those who are still hoping to hide.

A new program disclosed today permits tax-delinquent Americans to pay reduced penalties and likely avoid criminal prosecution -- if they voluntarily step up and 'fess up during the next six months.

"This is a chance for people to come clean on their own," IRS Commissioner Doug Shulman said. "For taxpayers who continue to hide their head in the sand, the situation will only become more dire."

Those who disclose their unreported income will pay back taxes and interest for six years, he said, plus a penalty of 20 percent of the highest amount in the foreign bank anytime in the past six years.

Those who don't will get the book thrown at them, Shulman said. Well, he didn't exactly say that. But he did say that for those who don't come forward, "we are instructing our agents to fully develop these cases, pursuing both civil and criminal avenues."

Fraud and other penalties could be slapped on, he said. But a 20 percent penalty is still significantly lower than the current 50 percent -- or more -- of the highest account balance over the last three years.

The arrangement comes on the heels of the IRS's pursuit of Swiss banking giant UBS, which admitted aiding rich Americans who wanted to dodge taxes. Although UBS paid $780 million, it's still battling the IRS over release of information on more than 50,000 accounts held by Americans believed to be hiding from taxes.

Switzerland, where tax evasion is not a crime, is also battling the European Union over banking secrecy. Many of its neighbors, including Germany and Italy, complain that their citizens avoid taxes by hiding their money across the border.

It's reached such a fever pitch that the Financial Times reported today that Swiss private banks have told their executives not to travel abroad -- even to neighboring France and Germany -- for fear that they will be arrested and questioned.

Swiss bankers already know they are at risk for questioning when they travel across the Atlantic. Last year, a senior Swiss banker was detained and questioned while in the U.S. -- an affront to the cozy, plush banking world that underpins the Swiss economy.

by Elizabeth Olson