Foreign Account Reporting Due; Renewed Chance for Amnesty– June 08, 2012

As we have been reporting over the past few years, the IRS continues to focus on taxpayers’ overseas activities, including foreign bank and financial account information. The IRS believes there is a significant lack of reporting in these areas, namely with the filing of the Foreign Bank Account Report (FBAR).

Who must file an FBAR?

Generally, any U.S. person with a financial interest in, or signature or other authority over any foreign financial account with an aggregate value exceeding $10,000 at any time during the year must report certain information to the U.S. Department of Treasury. The information is reported annually by filing Form TD F 90-22.1 no later than June 30th of the following year.

So who qualifies as a "U.S. person" and what is a "financial account" for reporting purposes? A U.S. person includes a U.S. citizen or foreign person who is considered a resident alien for U.S. tax purposes. It also includes U.S. corporations, partnerships, trusts and estates, among others. A financial account includes a securities, brokerage, savings, demand, checking, deposit or other account maintained with a financial institution. It also includes a commodity futures or options account, an insurance or annuity policy with a cash value, and shares in a mutual fund or similar pooled fund. The term “foreign account” simply means an account located outside of the United States.

What are the penalties for not filing?

A U.S. person who fails to report information on overseas financial accounts can be subject to penalties up to $10,000 per violation. Worse yet, willful failures can result in penalties of up to $100,000 or 50% of the highest balance in the account, whichever is greater. In more extreme circumstances criminal penalties could apply.

What if I have prior year unreported income from undisclosed foreign accounts?

The IRS is offering yet another Offshore Voluntary Disclosure Program that will allow certain taxpayers with undisclosed foreign accounts to “come clean” and catch up on prior filings. This program is available to taxpayers who have undisclosed offshore accounts or assets and who did not report the related taxable income.

Those qualifying for the program will be subject to a penalty of 27.5% of the highest aggregate value of the foreign account during the eight full tax years prior to the disclosure. This penalty can be reduced in certain circumstances. In addition, the program requires that participants 1) file all original and amended tax returns, 2) include payment for back taxes and interest for up to eight years and 3) pay any accuracy related and/or delinquency penalties. The program is currently scheduled to remain open for an indefinite period.

What if I have properly reported all my foreign account income but have not filed the required FBARs? The Department of Treasury has indicated that, in this scenario, the Voluntary Disclosure Program is not appropriate. Rather, taxpayers should file the prior reports and include an explanation as to why these were not previously filed.

What if I only recently learned that I should have been filing FBARs because I have signature authority over bank accounts owned by my employer?

The Department of Treasury has indicated that the Voluntary Disclosure Program is also not appropriate in this situation. Rather, you taxpayers should file the prior reports and include an explanation as to why these were not previously filed.

For more information on FBAR filing or other international issues, contact Ray Polantz at rpolantz@cohencpa.com or a member of your service team.

 

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.