In a recent New York Times article Warren Buffett wrote that the tax rate he paid last year (17 percent) was lower than that paid by any of his office employees.Is it possible for a millionaire to have a lower tax rate than their secretary?Yes. Earned income is taxed at rates that vary from 10 percent to 35 percent. And the Alternative Minimum Tax is at 26 percent or 28 percent. A single person has a tax rate of 25 percent on earned income over $34,500. Surely Warren Buffet’s secretary earns more than $34,500. So how does a millionaire pay a lower tax rate than their secretary?It likely has to do with the composition of their income. If the only income a millionaire has is qualified dividends and long term capital gains, these two items are taxed at a 15 percent rate. And the alternative minimum tax is 15 percent when applied to qualified dividends and long term capital gains.When politicians use statistics to justify a higher tax rate on millionaires they seldom mention that 46 percent of Americans pay no income tax as a result of a tax code that allows exemptions, deductions and credits to low and middle income households.IRS Amnesty ProgrammeOver the past two years about 30,000 individuals have volunteered for the IRS Amnesty programme and paid about $2.7 billion in back taxes, interest, penalties and fines. The IRS expects this number to substantially increase due to penalties that have not yet been collected.The programme has been a treasure trove to the IRS aside from the back taxes that have been collected. Amnesty from criminal prosecution required each individual to fully disclose how they made arrangements to evade US income taxes. The IRS now has a significant data base of banks and other financial institutions and financial consultants who aided and abetted US citizens to evade US income taxes. The IRS will now follow up this information to ascertain what other US citizens were aided and abetted who did not come forward.A separate target is global banks who have aided and abetted US citizens. As has been previously reported the Swiss bank, UBS AG, agreed to pay a $780 million fine as well as turn over details on thousands of accounts held by US citizens. There apparently are at least three other major global banks in the IRS crosshairs.What if you have not filed and have not volunteered for amnesty?The IRS recognises that there are two distinct groups of taxpayers that have not filed tax returns. One group deliberately does so to evade paying US income tax and an equally large group does so out of lethargy or ignorance. There are residents of Bermuda who have turned to the US consulate for help only to be told to look for a tax accountant in the “yellow pages” of the Bermuda telephone directory. Others cannot afford the tax preparation fee charged by the Big Four accounting firms. Others truly believe that if their income is less than $80,000 they owe no income tax and are not required to file a US tax return. Others have just not gotten around to doing it and when they receive no notice from the IRS asking why they have not filed continue to count on luck.The IRS has long had a policy to not criminally prosecute individuals who have not deliberately tried to evade US income tax. If you fall into the latter category and now decide to file prior year tax returns and pay back taxes, interest and penalty the IRS will likely welcome you back to the tax rolls and not try to send you to jail.How far back do you have to file?If you asked us this question two years ago we would have told you to go back to the last year you did not file as per the tax law and underlying regulations. However, in 2010 the IRS arbitrarily set the time frame for filing prior year’s returns at six years and in 2011 arbitrarily changed the time frame to eight years. When we asked the IRS their basis for changing the time frame and whether such time frame is now applicable to all US citizens who have not filed for multiple years we had no response.IRS rulings continue to defy logicAs an example, suppose that your tax return is due on April 15. Your tax return is considered to be timely filed if the postmark (from a US post office) on the envelope is April 15. Usually this can only be proven if the taxpayer used certified or registered mail. In prior years, tax returns sent by courier services such as FedEx had to be received by the IRS on or before April 15 to be considered timely filed. The IRS has now extended the “postmark” rule to packages given to certain courier services on April 15. However, if you use the US postal service Express Mail or Priority Mail, those packages must continue to be received by the IRS on or before April 15 to be considered timely filed.Job stimulus and income tax increasesUnder a bill proposed by President Obama, high incomers, defined under 2011 tax law as single individuals with taxable income over $174,000 and individuals filing joint tax returns with taxable income over $212,300, would only receive a tax benefit of 28 percent on home mortgage interest, state and local income taxes, charitable contributions, student loan interest, college tuition, health insurance write offs, moving expenses and other deductions. In addition, municipal bond interest and employer paid medical coverage would be partly taxed.Competency examination for unenrolled tax return preparersStarting this fall individuals who prepare tax returns who are not CPA’s, attorneys or an enrolled agent will be required to pass a competency examination on or before December 31, 2013. The examination will be held at 260 locations around the United States. Candidates will be given copies of Form 1040 and accompanying instructions and Publication 17 and can refer to these materials during the three-hour examination that will consist of 120 true or false and multiple choice questions.Pursuant to the requirements relating to practice before the Internal Revenue Service, any tax advice in this communication is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties imposed under the United States Internal Revenue Code, or (ii) promoting, marketing or recommending to another person any tax related manner.The tax advice given by this column is, by necessity, general in nature. You should, of course, check with your own U.S. tax consultant as to how specific transactions affect you since tax advice varies with individual circumstances.James Paul Sabo, CPA, is the President of ETS Ltd., PO Box HM 1574, Hamilton HM GX, Bermuda. Questions should be sent to jsabo[AT]expatriatetaxservices.com