A streamlined version of the IRS's 2012 Offshore Voluntary Disclosure Initiative has just been launched.

It aims to reward compliant taxpayers with undeclared foreign accounts with a penalty-free route and provide retroactive elections for those with certain retirement plans.

But like all good legislative carrots, it also carries a rather large stick in the guise of the ability to dole out severe civil monetary penalties and the threat of criminal prosecution.

The new version only requires the submission of three years of tax returns and imposes no Report of Foreign Bank and Financial Accounts (FBAR) penalties.

Jim Mastracchio, co-chair of US law firm BakerHostetler's national tax controversy practice, said: 'If you have an unreported offshore bank account, or unfiled FBARs, it is important to seek counsel as soon as possible. Whether the new streamlined program or the traditional offshore voluntary disclosure program is appropriate depends on the facts and circumstances of the taxpayer's case.

Taxpayers that fail to report income from offshore accounts, however, face stiff civil monetary penalties and possible criminal prosecution.

'We have seen cases where a taxpayer is now facing criminal charges after attempting to make voluntary disclosures, but were ineligible because the IRS was already in possession of their foreign account information,' Mastracchio added.

Canadian citizens living in the US also benefit from the new approach as it now offers relief to those who failed to properly report their Canadian Retirement Plan.

In a nutshell, the new system simply requires a submission of a questionnaire, the filing of US federal income tax returns for the tax years 2009, 2010 and 2011 and submission of FBARs for the last six years - if not previously filed.