IRS has provided additional details
on its offshore voluntary disclosure program (OVDP) that was reopened in
January of this year. Among other things, the new OVDP closes the so-called
“offshore loophole” by excluding taxpayers who failed to notify the Justice
Department of their appeal of a foreign government's disclosure of tax
information. IRS also announced that it has collected over $5 billion from its
various offshore voluntary disclosure programs and that 1,500 disclosures have
already been made under the new program. See IR 2012-64.
The first OVDP was announced by IRS
in 2009 and applied to those that voluntarily and timely disclosed unreported
offshore income for 2003 - 2008. In February of 2011, IRS unveiled a second
OVDP to give taxpayers with undisclosed income from hidden offshore accounts
for the 2003 - 2010 period the chance to get current with their taxes. The 2011
offshore voluntary disclosure initiative (2011 OVDI) was originally available
through Aug. 31, 2011 but was extended through Sept. 9, 2011. It carried higher
penalties than the original disclosure program, but the penalties could be
mitigated under certain circumstances.
IRS announced the new OVDP in
January of 2012 (2012 OVDP). The new program is substantially similar to last
year's program, but with several key differences. Notably, the maximum penalty
is raised from 25% to 27.5%, and unlike last year, there is no set deadline
under the new program to apply. IRS cautions, however, that it can change the
terms of the program at any time. For example, it could increase penalties for
all or some taxpayers or defined classes of taxpayers. In addition, it may end
the program entirely at any point.
IRS has revised its frequently asked
questions (FAQs) to provide more information on the 2012 OVDP, including the
following:
... In addition to the penalties that could apply to the
prior OVDP and OVDI, beginning with the 2011 tax year, a taxpayer that doesn't
disclose and is instead examined by IRS could also be subject to a penalty for
failing to file form 8938, Statement of Specified Foreign Financial Assets, as
required by Code Sec. 6038D. The penalty for
failing to file each one of these information returns is $10,000, with an
additional $10,000 added for each month the failure continues beginning 90 days
after the taxpayer is notified of the delinquency, up to a maximum of $50,000
per return. (FAQ #5)
... If there are undisclosed income tax liabilities from
domestic sources in addition to those related to offshore accounts and assets,
they must also be disclosed in the OVDP. (FAQ #7.1)
... A taxpayer can become ineligible to participate in the
2012 OVDP for failing to inform the U.S. attorney general of an appeal of a
foreign tax administrator's decision authorizing the providing of account
information to IRS. Additionally, upon announcement by IRS, certain taxpayer
groups that have or had accounts at specific financial institutions will be
ineligible due to U.S. government actions in connection with the specific
financial institution. (FAQ #21)
... In situations where spouses both desire to participate
in OVDP, they may do so jointly or separately. (FAQ #24.1)
... Procedures are provided for taxpayers/OVDP participants
who have a Canadian registered retirement savings plan (RRSP), registered
retirement income fund (RRIF), or other similar Canadian plan, and did not make
a timely election to defer U.S. income tax on income earned by the RRSP or RRIF
that has not been distributed but would now like to make an election. (FAQ #54)
... OVDP participants who have a retirement or pension plan
in a foreign country (other than a plan described in FAQ #54), that they do not
believe should be included in the offshore penalty base, are instructed to
contact the OVDI hotline. (FAQ #55)
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IR-2012-64, June 26, 2012 WASHINGTON — The Internal Revenue Service today announced that its offshore voluntary disclosure programs have exceeded the $5 billion mark and released new details regarding the voluntary disclosure program announced in January, including tightening the eligibility requirements. "We continue to make strong progress in our international compliance efforts that help ensure honest taxpayers are not footing the bill for those hiding assets offshore," said IRS Commissioner Doug Shulman. "People are finding it tougher and tougher to keep their assets hidden in offshore accounts." Shulman said the IRS offshore voluntary disclosure programs have so far resulted in the collection of more than $5 billion in back taxes, interest and penalties from 33,000 voluntary disclosures made under the first two programs. In addition, another 1,500 disclosures have been made under the new program announced in January. The voluntary disclosure programs are part of a wider effort by the IRS to stop offshore tax evasion and ensure tax compliance. This includes beefed up enforcement, criminal prosecution and implementation of third-party reporting through the Foreign Account Tax Compliance Act ( FATCA). The IRS also closed a loophole that’s been used by some taxpayers with offshore accounts. Under existing law, if a taxpayer challenges in a foreign court the disclosure of tax information by that government, the taxpayer is required to notify the U.S. Justice Department of the appeal. The IRS said that if the taxpayer fails to comply with this law and does not notify the U.S. Justice Department of the foreign appeal, the taxpayer will no longer be eligible for the Offshore Voluntary Disclosure Program ( OVDP). The IRS also put taxpayers on notice that their eligibility for OVDP could be terminated once the U.S. government has taken action in connection with their specific financial institution. Additional details of these eligibility issues are available in a new set of questions and answers released today on the current OVDP, which was announced in January ( see IR-2012-5). The IRS reopened the OVDP following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program – which helps bring people back into the tax system -- will be open for an indefinite period until otherwise announced. The program is similar to the 2011 program in many ways, but with a few key differences. Unlike last year, there is no set deadline for people to apply. However, the terms of the program could change at any time going forward. Under the current OVDP, the offshore penalty has been raised to 27.5 percent from 25 percent in the 2011 program. The reduced penalty categories of 5 percent and 12.5 percent are still available. The IRS also announced a plan to help U.S. citizens residing overseas to catch up with tax filing obligations and assistance for people with foreign retirement plan issues. See IR-2012-65 for more. |
IRS Announces Efforts to Help U. S. Citizens Overseas Including Dual Citizens and Those with Foreign Retirement Plans
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IR-2012-65, June 26, 2012 WASHINGTON — The Internal Revenue Service today announced a plan to help U.S. citizens residing overseas, including dual citizens, catch up with tax filing obligations and provide assistance for people with foreign retirement plan issues. "Today we are announcing a series of common-sense steps to help U.S. citizens abroad get current with their tax obligations and resolve pension issues," said IRS Commissioner Doug Shulman. Shulman announced the IRS will provide a new option to help some U.S. citizens and others residing abroad who haven’t been filing tax returns and provide them a chance to catch up with their tax filing obligations if they owe little or no back taxes. The new procedure will go into effect on Sept. 1, 2012. The IRS is aware that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs). Some of these taxpayers have recently become aware of their filing requirements and want to comply with the law. To help these taxpayers, the IRS offered the new procedures that will allow taxpayers who are low compliance risks to get current with their tax requirements without facing penalties or additional enforcement action. These people generally will have simple tax returns and owe $1,500 or less in tax for any of the covered years. The IRS also announced that the new procedures will allow resolution of certain issues related to certain foreign retirement plans (such as Canadian Registered Retirement Savings Plans). In some circumstances, tax treaties allow for income deferral under U.S. tax law, but only if an election is made on a timely basis. The streamlined procedures will be made available to resolve low compliance risk situations even though this election was not made on a timely basis. Taxpayers using the new procedures announced today will be required to file delinquent tax returns along with appropriate related information returns for the past three years, and to file delinquent FBARs for the past six years. Submissions from taxpayers that present higher compliance risk will be subject to a more thorough review and potentially subject to an audit, which could cover more than three tax years. The IRS also announced its offshore voluntary disclosure programs have exceeded the $5 billion mark, released new details regarding the voluntary disclosure program announced in January and closed a loophole used by some U.S. citizens. See IR-2012-64 for more. |
Report of Foreign Bank and Financial Accounts (FBAR)
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If you have a financial interest in or signature authority over a foreign
financial account, including a bank account, brokerage account, mutual fund,
trust, or other type of foreign financial account, the Bank Secrecy Act may require
you to report the account yearly to the Internal Revenue Service by filing
Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The FBAR is a tool to help the United States government identify persons who may be using foreign financial accounts to circumvent United States law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad. Recent FBAR GuidanceOn February 24, 2011, the Treasury Department published final regulations amending the FBAR regulations. These regulations became effective March 28, 2011, and apply to FBARs required to be filed with respect to foreign financial accounts maintained in calendar year 2010 and for FBARs required to be filed with respect to all subsequent calendar years. The FBAR form and instructions (PDF) have been revised to reflect the amendments made by the final regulations.On May 31, 2011, the Financial Crimes Enforcement Network (FinCEN) issued FinCEN Notice 2011-1 (PDF), revised June 6, 2011, to provide administrative relief for certain individuals with signature authority over but no financial interest in foreign financial accounts. On February 14, 2012, FinCEN extended this relief by Notice 2012-1. The deadline to report signature authority over certain accounts has been extended to June 30, 2013 per FinCEN Notice 2012-1 (PDF), for the following individuals:
On June 16, 2011, the IRS issued Notice 2011-54 to provide additional administrative relief for individuals with signature authority but no financial interest whose filing requirements were properly deferred under Notice 2009-62 or Notice 2010-23. The deadline to file the FBAR for these individuals was extended until November 1, 2011. This extension only applies to reports for the 2009 or earlier calendar years. This Notice did NOT extend the reporting deadline for calendar year 2010. On June 17, 2011, FinCEN issued Notice 2011-2 (PDF) to facilitate more accurate compliance with FBAR filing requirements. Notice 2011-2 was issued to provide administrative relief for certain officers or employees of investment advisors registered with the Securities and Exchange Commission who have signature or other authority but no financial interest in certain foreign financial accounts. On February 14, 2012, FinCEN extended this relief by Notice 2012-1. The deadline to report signature authority over certain accounts has been extended to June 30, 2013, per FinCEN Notice 2012-1 (PDF), for those specified individuals working for advisors registered with the Securities and Exchange Commission. On Jan 9, 2012, the IRS reopened the Offshore Voluntary Disclosure Program following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program will be open for an indefinite period until otherwise announced. Who Must File an FBARUnited States persons are required to file an FBAR if:
Exceptions to the Reporting RequirementExceptions to the FBAR reporting requirements can be found in the FBAR instructions. There are filing exceptions for the following United States persons or foreign financial accounts:
Reporting and Filing InformationA person who holds a foreign financial account may have a reporting obligation even though the account produces no taxable income. Checking the appropriate block on FBAR-related federal tax return or information return questions (for example, on Schedule B of Form 1040, the "Other Information" section of Form 1041, Schedule B of Form 1065, and Schedule N of Form 1120) and filing the FBAR, satisfies the account holder's reporting obligation.The FBAR is not filed with the filer's federal income tax return. The granting, by the IRS, of an extension to file federal income tax returns does not extend the due date for filing an FBAR. You may not request an extension for filing the FBAR. The FBAR is an annual report and must be received by the Department of the Treasury in Detroit, MI, at one of the two addresses below, on or before June 30th of the year following the calendar year being reported. File by mailing the FBAR to: United States Department of the Treasury P.O. Box 32621 Detroit, MI 48232-0621 If an express delivery service is required for a timely filed FBAR, address the parcel to: IRS Enterprise Computing Center ATTN: CTR Operations Mailroom, 4th Floor 985 Michigan Avenue Detroit, MI 48226 Delivery messenger service contact telephone number: (313) 234-1062 Account holders who do not comply with the FBAR reporting requirements may be subject to civil penalties, criminal penalties, or both. Electronic Filing for FBAR FormsOn July 18, 2011, FinCEN announced that it has developed an electronic filing system that will accept the FBAR form. E-filing is a quick and secure way for individuals to file FBARs. Filers will receive an acknowledgement of each submission. For more information about FBAR e-filing, read the FinCEN news release.New Reporting Requirements by U.S. Taxpayers Holding Foreign Financial Assets (Form 8938)Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. The new Form 8938 filing requirement does not replace or otherwise affect a taxpayers requirement to file FBAR. A chart providing a comparison of Form 8938 and FBAR requirements, and other information to help taxpayers determine if they are required to file Form 8938, may be accessed from the IRS Foreign Account Tax Compliance Act Web page.FBAR AssistanceHelp in completing Form TD F 90-22.1 (PDF) is available Monday - Friday, 8 a.m. to 4:30 p.m. Eastern time, at 866-270-0733 (toll-free inside the U.S.) or 313-234-6146 (not toll-free, for callers outside the U.S.). The form is available online at IRS.gov and Financial Crimes Enforcement Network Web site or by telephone at 800-829-3676. Questions regarding the FBAR can be sent to FBARquestions@irs.go |
www.irstaxattorney.com (212) 588-1113 ab@irstaxattorney.com
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