In order to qualify for the program the taxpayer must: 1) File 6 years of back tax returns reflecting unreported foreign source income; 2) Calculate interest each year on unpaid tax; 3) Apply a 20% accuracy-related penalty under Code Section 6662 or a 25% delinquency penalty under Code Section 6651; and 4) Apply a 20% penalty based upon the highest balance of the account in the past six years.

In exchange for the voluntary disclosure by the taxpayer the IRS will: 1) Not pursue charges of criminal tax evasion; 2) Not pursue other fraud and filing penalties including Code Section 6663 fraud penalties (75% of the unpaid tax) and failure to file a TD F 90-22.1, Report of Foreign Bank and Financial Accounts Report (the greater of $100,000 or 50% of the foreign account balance).

The IRS is cracking down on taxpayers that fail to file the required information and income tax reporting forms for foreign income and assets. These reporting requirements not only include taxpayers that have foreign bank accounts in their name, but also taxpayers with inherited accounts, beneficiaries of foreign trusts, and other foreign ownership situations.

And while the program does not grant full amnesty for taxpayers who have unreported foreign income, it does grant a limited amnesty with a calculable solution to the reporting penalties amount and a possible last chance to avoid criminal prosecution.

The program is currently designated to end on October 15, 2009.

(Updated December 2009)