IRS Issues Updated F.A.Q. for 2012 Offshore Voluntary Disclosure Program

On June 26, 2012, the IRS posted updated frequently asked questions and answers regarding the extended Offshore Voluntary Disclosure Program that it announced in January 2012 (http://www.irs.gov/businesses/small/international/article/0,,id=256774,00.html). The IRS decided to extend the program indefinitely following the success of the 2011 and 2009 Offshore Voluntary Disclosure Initiatives. In its press release IR-2012-64 on June 26, 2012, the IRS announced that the programs have resulted in the collection of more than $5 billion in back taxes, interest and penalties from 33,000 voluntary disclosures under the 2011 and 2009 programs. Another 1,500 disclosures also have been made since the program was extended in January 2012.

The purpose of the IRS Offshore Voluntary Disclosure Program is to motivate U.S. taxpayers to come into compliance voluntarily with the U.S. international reporting requirements and to prevent offshore tax evasion. The program allows U.S. taxpayers to file delinquent forms such as the Report of Foreign Bank and Financial Accounts (“FBAR”) Form TD F 90-22.1; Form 8938 regarding specified foreign financial assets; Form 5471 regarding foreign corporations owned by U.S. persons; Form 5472 regarding 25% foreign-owned U.S. corporations; Form 8865 regarding foreign partnerships owned by U.S. persons; Forms 3520 and 3520-A regarding foreign gifts and foreign trusts; and Form 926 regarding transfers of property to foreign corporations.

The voluntary disclosure period under the 2012 program includes the most recent eight years for which the filing due date has already passed. According to FAQ #9, the eight year voluntary disclosure period does not include current years for which there has not yet been non-compliance. For example, U.S. taxpayers who submit the voluntary disclosure prior to the original or extended filing due date for the year 2011 must include the years 2003 through 2010 in the disclosure. For U.S. taxpayers who disclose after the original or extended due date for the year 2011, the disclosure must include the years 2004 through 2011.

The applicable penalty for participating in the Offshore Voluntary Disclosure Program is 27.5% of the highest aggregate balance in foreign bank accounts or value of foreign assets during the period covered by the voluntary disclosure. In some limited circumstances, a lower penalty of 12% or 5% could apply based on the requirements in FAQs #52 and #53. The incentive to participate in the Offshore Voluntary Disclosure Program is that U.S. taxpayers are able to file delinquent forms that should have been filed for prior years while avoiding criminal liability.

According to FAQ #3, the 2012 Offshore Voluntary Disclosure Program does not have a set filing deadline by which U.S. taxpayers must apply. However, the IRS could change the terms of the program at any time going forward. For example, the IRS could increase the penalties, limit access to the program for certain taxpayers or end the program altogether.

For further information, please contact your Aronson tax advisor or Alison Dougherty, International Tax Services at 301.231.6795.

Caution: The New Form 8938 to Report Specified Foreign Financial Assets May Need to Be Filed in Addition to the FBAR

The filing of the FBAR or the Form 8938 does not preclude the U.S. taxpayer from being required to file the other form. Both the FBAR (Form TD F 90-22.1) and the Form 8938 may need to be filed. A chart with the comparison of the filing requirements for the FBAR and the Form 8938 is on the IRS website at http://www.irs.gov/businesses/article/0,,id=255986,00.html.

On June 7, 2012, the IRS issued updated basic questions and answers regarding Form 8938 reporting for specified foreign financial assets. The Hiring Incentives to Restore Employment Act of 2010 (Public Law 111-147) enacted Internal Revenue Code Section 6038D which requires U.S. taxpayers to Continue reading »

Be Aware: FBAR Filing Date Moved Up!

The Form TD F 90-22.1 is commonly referred to as the foreign bank account report or “FBAR.” The FBAR is usually due on June 30th following the calendar year end. This year June 30th is on a Saturday so the FBAR for the calendar year 2011 is required to be received by the U.S. Treasury Department on or before June 29, 2012. The mailbox rule does not apply to the filing of the FBAR and an extension of the due date is not allowed. The mailbox rule means that U.S. federal income tax returns are considered to be filed based on the date Continue reading »

Get Out of Penalty Free, er…Reduced from the IRS for Offshore Accounts

As reported in Accounting Today, the IRS has again extended it’s deadline with its latest Offshore Voluntary Disclosure Program. The program is a third variation on the theme of encouraging offshore investors to report their accounts with a promised cap on the penalties along with a threat of how much they might have to pay later if they don’t come forward now.

The penalty cap has increased from 25% to 27% of the account balance with threats of up to 50% on non-reporters.  This time the program is open ended for the time being but it is harsher than in 2009 which allowed taxpayers to argue reasonable cause and get penalties reduced.

As part of the Foreign Account Tax Compliance Act, foreign financial institutions are to provide information on assets held by U.S. taxpayers. If the IRS finds out about your account from other sources, you are no longer eligible for the penalty cap.

Investors beware – your hedge funds held offshore count and need to be reported by filing an FBAR report!

Reporting Requirement for Foreign Bank Accounts

If your organization has a financial interest in or signature authority over a foreign bank account or financial account, including mutual funds or other type of financial account, you may be required to file Form TD F 90-22.1 annually.  Use this link to the IRS website to read guidance and find the form if you think this applies to you:

http://www.irs.gov/businesses/small/article/0,,id=148849,00.html

IRS reminds taxpayers the FBAR reports are due June 30

The “Report of Foreign Bank and Financial Accounts” known as the “FBAR” for short, applies to nonprofit organizations.  The report is due June 30 if you had more than $10,000 at anytime during 2010 in a foreign account(s) or had signature authority over such account(s).  The form is a Treasury form, referred to by Treasury as a TD F 90-22.1 and is due on June 30, 2011 for the 2010 year’s activity.  For more information, here is the link to the IRS website:  http://www.irs.gov/pub/irs-pdf/p4261.pdf

FBAR Extension Relief! IRS Notice 2010-23 Provides Guidance on FBAR Filing

On February 26, 2010, the Treasury proposed amending the Bank Secrecy Act which implemented the FBAR (Report of Foreign Bank and Financial Accounts).  The IRS simultaneously provided Notice 2010-23, which will provide some anxiously awaited relief for people who have no financial interest in, yet have signature authority over foreign financial accounts that have commingled funds.  The IRS is extending the FBAR filing from June 30, 2010 to June 30, 2011 for those people who merely have signature authority in, but no financial interest in a foreign financial account for which an FBAR would otherwise have been due on June 30, 2010.  This applies to 2010 and prior calendar years.  The Treasury Department has published proposed FBAR regulations to provide guidance on who must file by June 30, 2010, and guidance on how to answer FBAR related questions on the 2009 federal income tax return. 

Use this link for the IRS announcement: http://www.irs.gov/taxpros/article/0,,id=219707,00.html, and this link for the IRS Notice 2010-23: http://www.irs.gov/pub/irs-drop/n-10-23.pdf