August 5, 2015 | Rome, Italy | Clear 24°C

The perils of doing nothing

By Don Carroll
Published: 2015-07-26

The IRS may not go at you "Game of Thrones"-style, but postponing is unwise.
W

ith relentless Italian summer heat bearing down daily my thoughts tend to turn to being with family and friends on the Maine seacoast. Doing nothing has a pleasant gravitational pull in summer. But there are deadlines. Dealing with them now, I know, will make vacation days that much more enjoyable. This is no time to stick my head in the sand.

My view runs counter to the cheerful, independent minded approach posed by Carl Honorč in a recent New York Times essay titled, "If World Leaders Can Skip Deadlines, Why Can't I?"

An avowed supporter of the "Slow Movement," Honorč favors an unplugging approach. Who needs deadlines? He uses Albert Einstein's cracking the theory of relativity, the lengthy peace process in Northern Ireland, Tim Berners-Lee's invention of the World Wide Web and John Kerry's negotiating the Iran nuclear deal as conspicuous examples of how important projects obtain better outcomes if removed from time constraints. Haste makes waste. Deadlines and rushing can be ruinous, he says.

Honorč hails from the book-publishing world, where deadlines have become elastic — or so he says. He quotes the late Douglas Adams, author of "The Hitchhiker's Guide to the Galaxy," who once allegedly said: "I love deadlines, I love the whooshing noise they make as they go by."

Then again, it matters who is setting the deadline.

I can envision the reaction of my editor if I were to I tell him that I'd be sending him this column a month late. The image that comes to mind is the end that befell members of the Stark family in the "Red Wedding" episode of "Game of Thrones." In a nutshell, no mercy.

The same holds true for deadlines set by tax authorities.

Last winter I discussed how the U.S. and Italy were each aggressively pushing for compliance to their tax laws. The countries are doing this both independently and in tandem. Each now has programs in place to allow taxpayers to make voluntary disclosures declaring past omissions. But the time is fast drawing near to when the risks for failing to do so will ratchet up significantly.

On the face of it, the U.S. program has no specific set of deadlines. But the IRS has been beating its drum since 2010, when the Foreign Account Tax Compliance Act ("FATCA") was passed. It has repeatedly announced its determination to penalize those who postpone regularizing their tax situation.

Which brings us to the "statute of limitations," the laws that bar tax authorities in each country from making a claim against a taxpayer after a certain time period has passed. The U.S. and Italy each have several such cut-off dates.

Generally, the statute of limitations for the IRS to assess taxes expires three years from the due date of a return, or the date when it was filed — whichever is later. But the statute is extended to six years where there is a "substantial omission" of more than 25 percent of gross income or $5,000 in foreign source income.

Importantly, there is no deadline when the IRS determines that a taxpayer has intentionally failed to file tax returns or had filed fraudulent ones. Tax fraud and evasion can also constitute criminal violations.

Italy's statute of limitations for taxpayers who fail to file their returns is less open-ended. Italian tax authorities in Italy have five years from the date when a return should have been filed to assess any tax due.

For returns that have already been filed the statute is four years from the date of filing for the return to be reviewed and any additional taxes assessed. Both of these time periods are doubled where a crime is involved.

Critically, the Italian voluntary disclosure program has a Sept. 30, 2015 deadline, which is just around the corner. Although that deadline may be extended, expecting it to do so is a dangerous gamble.

Sometimes, resting easy means confronting the hardest tasks first. The tax deadlines heading this way are ones every American resident in Italy needs to be aware of and take a moment to evaluate personally. Now, not later, is the time to determine if you need to take action to put your personal tax situation in order.

Otherwise, the whooshing sound could be money flying out of your bank account.

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CLOSING ARGUMENT

Don Carroll

Don is an American attorney with a U.S. tax and legal practice in Rome (see his website). His views do not represent legal advice.

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