Prior to September 1, 2012, the IRS assessed penalties on late tax returns no matter how they were filed. With the changes to the Streamlined Procedures, an IRS amnesty program to help taxpayers get caught up on US taxes, they waived all penalties for expats! If you are behind and need to get caught up, the very best way to do so is by applying for the Streamlined Procedures and following the IRS program requirements carefully. While previously many Americans chose to do a quiet disclosure (simply filing back returns and hoping they don’t get flagged), we highly recommend going through this program and doing things properly – especially because there are no penalties to do so.
However, FBAR penalties can still be assessed. The US Department of the Treasury reserves the right to seize up to 50% of the assets in overseas bank accounts or $100,000 per account, whichever is higher. However, this is typically only done in cases where people are deliberately hiding assets overseas to avoid taxation. Expats are generally not penalized if they voluntarily come forward.
There is a new passport revocation law in place, which allows the government to seize your passport if you owe $50,000 or more in back taxes. This means keeping accurate records and staying on top of your expat taxes is more important than ever in order to prevent a situation like this from occurring.