targets for the US Internal Revenue Service.

The IRS has initiated a worldwide effort to encourage Americans living abroad to start filing tax returns, as required by US law.

It estimates that 61 percent of Americans living in another country fail to file tax returns.

Some of the worst offenders have been warned they may face criminal prosecution if they do not immediately volunteer to start filing returns.

Local accountants Butterfield & Steinhoff is offering to help Americans living in Bermuda who need help regarding tax returns.

"Although the IRS has not offered to grant specific concessions to such volunteers, it has stated that it will not recommend criminal prosecution of a taxpayer who comes forward, makes a voluntary disclosure and files an accurate return,'' said B&S's tax manager Ms Denise Thompson.

In addition to encouraging voluntary participation, the IRS is strengthening its ability to locate non-filers living abroad, she added.

For example, the IRS has proposed rules which would require applicants for US passports to disclose their home address in their foreign country of residence.

"This information could literally lead the IRS to the doorstep of the non-filers,'' said Ms Thompson.

She added: "We have found that many US taxpayers living abroad do not properly file tax returns because they are not aware of the requirement to file or they do not understand the tax rules applicable to taxpayers living abroad.'' American tax laws are so tough that even non-US citizens who hold a "green card'' are subject to taxation, even if they no longer live in the US.

US taxpayers abroad are generally taxed in the same manner as those residing in the country, said Ms Thompson.

"Their worldwide income is subject to taxation and is reportable on an annual income tax return,'' she said.

"However, there is a provision in the US tax law which allows qualified individuals living abroad to annually exclude up to $70,000 of earned income from taxation.

"This exclusion, however, is only available through an election on a timely-filed income tax return.

"If the election is not made in this manner, the exclusion is generally not available and the taxpayer's entire income will be subject to tax.

"Therefore, taxpayers who did not file timely tax returns because they believed they were not required to file or who misunderstood the application of the annual income exclusion may have lost the opportunity to claim the exclusion for prior years.'' Ms Thompson estimated that there may be a "fair number'' of Americans living in Bermuda who were not filing US tax returns.

She added: "At Butterfield & Steinhoff, we have a tax department of six professionals who specialise in US corporate and individual tax services.

"We can assist any non-filing US taxpayers who may desire to assess their options under the IRS volunteer programme.'' Butterfield & Steinhoff's services include consultations regarding available options, calculation of applicable tax, interest and penalties and representing the taxpayer before the IRS.

"In some cases, we can assist in the application for a reduction in civil penalties and request relief which could result in the volunteer taxpayer being allowed the benefit of the $70,000 earned income exclusion for prior years,'' said Mr. Thompson.

"We strongly encourage non-filers to consider voluntary compliance as the IRS has indicated it will increase efforts to identify and locate non-filers and may seek criminal prosecution against those who do not comply voluntarily.'' Ms Denise Thompson.