Foreign Embassy Staff Invited To Put US Tax Affairs In Order

by Mike Godfrey, Tax-News.com, Washington

21 November 2006

The US Internal Revenue Service on Friday encouraged US-based employees and former employees of foreign embassies, foreign consular offices and international organizations to participate in a one-time settlement initiative to resolve tax matters related to their employment.

The IRS explained that the offer is only open to US citizens, green-card holders and foreign employees with an US tax obligation. Accredited diplomatic personnel are generally exempt from income taxes on their wages under international treaties or agreements.

The US tax authority estimates that as many as half of the employees subject to US tax either fail to report their wages, claim deductions they are not entitled to, incorrectly establish SEP/IRA retirement plans, fail to pay self-employment tax, or fail to file tax returns at all.

The IRS is offering a settlement initiative for these employees which will expire on February 20, 2007. In order to participate in the initiative the employees must submit amended or original tax returns for tax years 2003, 2004 and 2005 which properly reflect their income and expenses.

Failure to act now could mean facing a costly audit process in the future. Foreign embassy, consular office or international organization employees who fail to come forward may be subject to IRS audits and penalties which could cover more than just three years.

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