| NEW YORK
NEW YORK When Andrew Winfield applied to become a U.S. citizen in 2011, he realized he owed taxes on accounts he had left behind in his native England.
So he paid what he believed he owed — $2,800 in back taxes, plus the estimated interest and penalties - and entered the U.S. Internal Revenue Service's overseas disclosure program.
But when the IRS assessed its penalty in November, Winfield was stunned to learn that it would be $28,000 — 10 times the amount of tax he owed from 2003 to 2010.
"My first reaction was: ‘There's no way in hell I'm going to pay that,'" the 39-year-old Wake Forest, North Carolina, resident says. "It's kind of crazy when you look at the numbers and compare the penalty to the $2,800 (in back taxes) due."
The IRS has been aggressively seeking out taxpayers with offshore assets, asking them to come in on their own to avoid further prosecution and requiring foreign financial institutions to send information about American accounts.
But the voluntary disclosure programs have lumped together overseas Americans and immigrants with relatively small accounts and those trying to evade taxes by putting their money offshore.
Winfield moved to the United States from England in 1992 to go to college, with the hope of becoming a professional tennis player. He ended up staying and becoming a certified public accountant.
His bank accounts were funded from inheritance money from his sister - who had died young - and his grandmother, as well from childhood birthday and Christmas gifts.
All the funds had already been taxed in England, he says. But U.S. tax rules require all American taxpayers who have at least $10,000 in a foreign financial account to file a form known as the FBAR each year. He had never declared those accounts here.
To enter the IRS's overseas voluntary disclosure program, Winfield and his wife, Marisa, scrambled to file amended returns for 2003 through 2010, working with his mother in England to come up with the details of the accounts he had there. Winfield paid what he thought he owed, became a citizen, and waited for the IRS to assess its penalties.
The penalties assessed in the 2011 program, which Winfield was in, can go as high as 25 percent of the account's highest value. The IRS raised that figure to 27.5 percent for the 2012 program.
While last year the IRS announced a streamlined procedure for certain overseas Americans who were considered low compliance risks, there is no such program for immigrants. Yet with some 39 million immigrants in the United States, compared with 5 million to 6 million Americans living abroad, Winfield's story may signal a bigger problem at home.
"There's only half-a-million FBARs reported every year," Winfield says. "It's like I'm getting hit for the other 30 (plus) million."
FEAR AND MISUNDERSTANDING
"There's a tremendous amount of fear and misunderstanding," says Steven Mopsick, a Sacramento, California, lawyer who focuses on tax controversies and has handled some 100 voluntary disclosure cases. "This isn't something they teach you in citizenship classes."
In fact, Mopsick figures that about half his clients going through the overseas disclosure programs are immigrants from places that include India, Taiwan, Greece and northern Europe.
"I have many Indian couples and families who have come here and successfully established themselves, and all of a sudden they realize their names are on their parents' accounts," he says. "It's a common practice in lieu of estate planning to put names of children on the accounts so they don't have to go through probate."
Since he always prepared his own tax returns, Winfield says it was not obvious where he should turn for help. He has been looking around for the right accountant or tax attorney to represent him, but says it has been a struggle.
"I've tried to talk to people in North Carolina, and nobody has any dealings with it," he says. "You have to talk to people in New York or D.C."
He says he has requested an extension and wonders if he did the right thing by entering the formal overseas disclosure program.
"I just stay awake at night trying to think of ways it could have been handled differently," Winfield says.
Because the penalty is based on balances when the exchange rate favored the British pound, paying that amount would mean giving up virtually everything he now has in the accounts.
"So, yes, I could pay it," he says. "But would I have a problem paying it? Yes, because I know where the money came from."
Unfortunately, feelings about a death in the family are not generally part of a tax calculation.
(The writer is a Reuters columnist. The opinions expressed are her own.)
(Editing by Beth Pinsker and Lisa Von Ahn)