Thousands of “accidental Americans” – people who may not even realise they are liable to US laws – should heed terms of a new voluntary disclosure programme to uncover undeclared monies, says Withers, the law firm.

Last week, the US Internal Revenue Service announced a new voluntary disclosure initiative, which modifies the programme rolled out in 2009. It is designed to give US taxpayers with unreported offshore accounts a chance to come clean while mitigating the risk of criminal prosecution.

One feature of the new initiative is the offer of more attractive terms to “accidental Americans’ – people who have undeclared accounts because they simply did not know they were US citizens and taxpayers. This can happen if someone is born in the US to non-US parents and raised outside the US.

The warning from Withers comes at a time when governments such as those of the US, Germany and UK are trying to raise revenues and stem possible tax “leakage”. In the UK, for example, the government launched a disclosure agreement programme with the tiny Alpine principality of Liechstenstein over a year ago; Italy has also recently held a tax amnesty programme.

Under US laws, persons who are born outside of the US can find themselves to be “accidental Americans” where one of their parents was a citizen US who lived in the US for the requisite time period. Finding out that they are American may come as much of a shock to them as finding out that they owe the IRS money, Withers said in a briefing note on the programme.

“Accidental Americans now have until 31 August 2011 to declare accounts, file accurate returns and pay back taxes, interest, and accuracy or delinquency penalties for tax years 2003 through 2010. They must also pay a penalty of 5 per cent of the highest aggregate value of ‘offshore’ accounts or assets during that period. This is levied `in lieu of’ all other penalties that the IRS could assert,” said Jay Krause, partner at Withers.

“Other noncompliant US taxpayers will have to do this too, but will face a 25 per cent penalty. A 12.5 per cent penalty is available for those with accounts of less than $75,000 in the aggregate,” Krause continued.

“`Accidental Americans’ are shocked to learn of their US status. Most are under the mistaken impression that not holding a US passport means that they are not US citizens.  Unfortunately, that is not the case,” he said.

“US taxpayers with undisclosed financial interests who do not come forward could face severe financial penalties and even prison. These threats are no longer empty as the current financial climate – including the proliferation of whistleblowing in the wake of WikiLeaks, growing numbers of tax information exchange agreements and the extensive information-gathering powers granted to the IRS by the Foreign Accounts Tax Compliance Act – mean the authorities have more power than ever to ‘ferret out’ non-compliant taxpayers,” he added.