There is a general, overriding principle in the world of Federal Tax that goes something like this: if you voluntarily come forward to admit your prior tax shenanigans and get yourself back in the good graces of the IRS, there will be less negative consequences than if the IRS catches you trying to get away with it.
This principle holds true with respect to the reporting of foreign bank accounts. Taxpayers who are caught hiding assets in foreign accounts are subject to criminal prosecution, and could very well face jail time. But under the IRS voluntary amnesty programs, those who come forward and disclose their offshore assets are promised they won’t go to jail in exchange for payment of penalties that are based on a percentage of their account balances.
There are some who want to get back on the grid without having to pay hefty penalties. They do this by making a so-called “quiet disclosure” of foreign assets; they report their foreign accounts without giving the government information about accounts held in previous years. This type of disclosure sometimes tricks the IRS into believing the accounts are brand new.
According to a recent report by the Government Accountability Office (GAO), there may be more quiet disclosures happening around the nation than the IRS has the ability to identify. The IRS is taking tips from GAO on how to detect more of these quiet disclosures.