At the close of business today, the Internal Revenue Service (IRS) stopped accepting applications to its amnesty program from citizens hiding assets overseas. In the wake of UBS's acquiescence to U.S. demands earlier this year to out American clients hiding riches in the Swiss bank, a record number of taxpayers came forward to take advantage of the program. In light of these disclosures, some in Congress are advocating for more forceful tax legislation to help the IRS continue to root out overseas tax shelters.

According to IRS Commissioner Douglas Shulman, as reported in a BNA (subscription required) article today, “an unprecedented number of taxpayers have come in the door with voluntary disclosure.” In fact, some 7,500 U.S. taxpayers have come forward to disclose secret accounts in overseas tax havens containing anywhere from $10,000 to $100 million.

The program, which began in March after the IRS stepped up enforcement efforts, encouraged tax cheats to come clean by offering a streamlined, uniform penalty. Though participants will receive amnesty from criminal prosecution, they will still have to pay stiff fines and back taxes on all of the hidden monies. An additional benefit is that with disclosure, as Commissioner Shulman phrased it, “these people have come in the door and are now in the U.S. tax system.”

The original deadline to apply for tax amnesty was Sept. 23, but according to a Los Angeles Times report Tuesday, the IRS extended the deadline after tax attorneys complained that they would not be able to file all of the paperwork from the flood of interested parties coming forward. This surge represents an exponential rise of participants in a program that routinely gets few disclosures, as for example the less than 100 taxpayers who came forward in 2008.

Credited for this influx of suddenly honest taxpayers is UBS's agreement in August to settle criminal charges made by the U.S. that the Swiss bank had helped U.S. taxpayers hide assets from the IRS. In the deal, UBS agreed to hand over the identities and account information of some 4,450 American clients, and the Swiss government agreed to help crack down on other Swiss banks posing as tax havens.

While the increase in voluntary disclosures pleases congressional members like Sen. Carl Levin (D-MI), who noted in a press release that hidden accounts came in from more than 100 banks in 70 countries, he claims Congress needs to do more to check tax havens. In his Wednesday press release, Levin claimed there are “thousands of other taxpayers...still in the shadows, working to keep their offshore accounts hidden.”

Though Congress can help the government root out rich tax cheats with stricter legislation, IRS funding is a much more important aspect of the problem. As OMB Watch has pointed out in the past, without adequate funds, the IRS cannot properly audit and investigate potential tax cheats. The boost in the agency's FY 2010 enforcement budget is a start, as the investment seems to be paying dividends already, but more funds will be needed just to maintain audit levels with the steadily increasing numbers of both corporate and personal tax returns.

Image by Flickr user Mark Strozier used under a Creative Commons license.