You've never seen IRS penalties like these.............

http://money.cnn.com/2015/04/01/pf/taxes/irs-penalties/index.html?source=yahoo_hosted

Was it an April Fool's joke?  Only a homeland American could ask that.  US citizens abroad knew right away that it was dead serious.

But how is it possible, a homelander might ask, that someone working and living in London or Budapest could owe up to $240,000 in penalties on a $20,000 local bank account?  Especially if the person owed no tax to the United States and it was just a matter of paperwork he didn't know he had to file.  Doesn't that seem a bit, well, outrageous?

Good, we agree.

It's possible because it's the law of the land.  Yes, the IRS has the discretion to lower the penalties by taking the whole picture into consideration.  But asking for and getting mitigation usually requires costly legal assistance.  A taxpayer really is guilty until proven innocent here.

Furthermore, there is evidence from the past that the lower the income (or the amount in the account), the higher the penalties.  Don't take my word for this, take Nina Olson's.  She's the IRS National Taxpayer Advocate and she's been raising a red flag about this for several years now.  Here is what she said in her 2014 Report to Congress (Page 86, MSP #7):

"Under the 2009 OVD program, however, the median offshore penalty paid by those with the smallest accounts was nearly six times the median unreported tax, as compared to about three times the unreported tax for those with the largest accounts, as shown on the figure below. Moreover, unrepresented taxpayers paid proportionately more regardless of the size of their accounts, as shown below."

"Under the 2011 OVD program, the median offshore penalty for those with the smallest accounts rose to eight times the unreported tax, up from about six times the unreported tax under the 2009 program, as shown above and below. Unrepresented taxpayers continued to pay proportionately more except for those with the smallest accounts, as shown on the figure below. Moreover, for the middle 80 percent of taxpayers, the offshore penalty percentage increased by about 85 percent between the 2009 and 2011 programs (from 381 to 706 percent) while the median account balance declined by about 70 percent (from $607,875 to $183,993). Thus, the offshore penalty became increasingly more disproportionate for those with small accounts who were most likely to have been benign actors."

Thanks to Nina Olson, Americans abroad and immigrants in the US now have the Streamlined Program which is a much simpler process than OVDI/P and meant for those "benign actors" - people who made an honest mistake and didn't know they were supposed to file.

Two comments about this program:

Lack of Trust:  Because outrageous and disproportionate penalties were applied in the recent past to middle and low income Americans abroad, people are afraid.  There were just too many horror stories and Americans abroad read them and panicked.  If there is even a hint that people are getting screwed in the Streamlined program, there will be a collective scream and, I think, skyrocketing renunciation rates.  

Communication Gap:   How is it that so many Americans abroad didn't know they had to file and report bank accounts in the first place?  This post on How We Got Here explains what happened. 

The IRS needs to do international outreach about Streamlined and they need to do it now.

Because there are still US Persons out there who don't know about the rules or who don't understand that these rules apply to them.  "I'm an English teacher/au pair/freelance programmer and I don't make much money.  All those filing and reporting requirements and amnesty programs  have nothing to do with me."  

Oh, my friends, how I wish that were true.