Tough time to be a tax cheat

Those of us who pay our taxes in full and on time might have mixed feelings about this: About 7,500 tax cheats who hid money overseas have applied for an IRS amnesty program that will keep them out of jail and -- here's the most important part -- substantially reduce their penalties.

Mixed feelings as in: Yay, the cheaters will finally have to pay, but, boo, too bad the book isn’t being thrown at them.

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Tax cheats with secret overseas accounts normally face stiff penalties in addition to finally paying what they owe. But under the amnesty, the standard fine of 50% of the unpaid tax bill will be reduced to 5% or perhaps 20%. Plus, The New York Times says, "They also will pay that penalty once, based on the highest balance in their offshore accounts over the last six years, rather than for each of those six years."

Pretty cushy deal, no? Yet, many likely didn't step forward before the amnesty offer expired Wednesday night. Here are their hopefully shrinking options, according to the Times and other sources:

• Keep your money hidden at its current location. The IRS has made it clear that this crackdown is just the beginning. For instance, it's opening more overseas offices -- in Beijing, Sydney and Panama City -- to pursue cases against international tax cheats. "The IRS has new momentum in this entire area and in the coming months our efforts will only intensify," IRS Commissioner Doug Shulman said this week.
• Find a safer place to stash the cash. Good luck with that. The old standby, the Swiss bank account, is out. In August, UBS AG, Switzerland's largest bank, agreed to inform the IRS about 4,450 accounts in which Americans were suspected of hiding money. The Times says, "Six wealthy American clients of UBS have pleaded guilty to tax evasion in recent months."
• File amended returns and hope and pray that the IRS doesn't catch on. That one nearly makes us laugh.
• Contact the IRS and 'fess up. You'll likely avoid jail, but you'll pay the full-blown penalty now that the amnesty offer is over.

One of the most incredible things we read in connection with this was the statement by a guy who stashed his money in Panama and insisted he didn't know it was taxable. He reminded us of Tom Daschle. How can people not know these things?

The fellow wisely opted for amnesty, and his accountant is likely nervous. The Times says the amnesty program "requires people to disclose the names, addresses and telephone numbers of bankers, lawyers, accountants, tax advisers and trust officials who helped them evade taxes."

No one knows yet how much money will rightfully find its way into the coffers of Uncle Sam, but, an Associated Press story reports:

The tax dodgers were hiding money in more than 70 countries and on every continent except Antarctica. Accounts ranged from just over $10,000 to more than $100 million.

Domestic tax cheats, don't think you're off the hook. The IRS has made it much more attractive financially for people to blow the whistle on suspected tax dodgers here at home.

Related reading:

• The world’s richest tax cheats
• The biggest tax cheats: Rich folks
• Rat out your neighbors, get paid by the IRS