Tax cheats who stash money overseas face a bigger penalty E-mail Tweet Facebook Google Plus Linkedin Share icons by Tom Huddleston Jr." itemprop="author" class="article-byline-author"> Tom Huddleston Jr. @FortuneMagazine June 18, 2014, 6:07 PM EDT U.S. taxpayers who mistakenly fail to report income or assets held overseas will soon be getting a break from the Internal Revenue Service, while tax evaders who refuse to turn themselves in will face harsher penalties. The IRS issued rule changes on Wednesday in a move that affects U.S. taxpayers living abroad as well as U.S. residents with offshore accounts. The point of the rule tweaks is to reduce the pressure on taxpayers who fail to report foreign income or assets, but who come forward and admit their error in a timely fashion. All penalties will be waived for U.S. taxpayers living abroad who mistakenly failed to report their foreign accounts. Meanwhile, taxpayers in the U.S. who have foreign accounts will face fines of only 5% of the total of the assets at issue. Previously, the offshore voluntary compliance programs were not available to taxpayers living in the U.S., while taxpayers living overseas could only take advantage of the reduced penalties if they owed less than $1,500 in unpaid taxes. The IRS is also increasing penalties for those who evade taxes on their foreign accounts and then don’t come forward quickly. Those who wait until after it becomes clear that federal officials are investigating the bank holding their accounts face penalties of 50% of the balance in those accounts, up from 27.5% previously. IRS Commissioner John Koskinen said Wednesday that the changes are the result of the IRS’s determination that it was imposing penalties that were “were too harsh or restrictive.” The U.S. government has been pushing for better overall tax compliance from taxpayers with accounts overseas for roughly five years and those efforts have led to the IRS collecting roughly $6.5 billion in taxes, interest and penalties from more than 45,000 taxpayers in that time. But, as The Wall Street Journal reported earlier this week, some of the government’s strong-arm tactics have also resulted in a record number of U.S. citizens living abroad and green-card holders renouncing their allegiance to the U.S. to avoid what they see as overly harsh penalties. “Our aim is to get people to disclose their accounts, pay the tax they owe and get right with the government. At the same time, for important categories of these non-willful people with offshore issues, a compliance regime that is too harsh won’t net the desired result,” Koskinen said in a statement.