Issue
The Internal Revenue Service (IRS) has issued internal guidance regarding offshore activities that provides taxpayers that have not filed Form TD F 90-22.1, “Report of Foreign Bank and Financial Accounts” (FBAR), a limited-time opportunity to file the delinquent forms without penalty. No penalty will be imposed if the FBAR is filed by Sept. 23, 2009, provided the taxpayer meets the criteria and follows the guidance outlined below.
Taxpayers Potentially Affected
Taxpayers who appropriately reported all U.S. taxable income associated with their offshore accounts but that did not file the required FBAR.
Background
U.S. citizens, residents, and certain other persons must report annually their direct or indirect financial interest in, or signature authority (or other authority that is comparable to signature authority) over a financial account that is maintained with a financial institution located in a foreign country, if for any calendar year, the aggregate value of all foreign accounts exceeded $10,000 at any time during the year. To comply with this reporting requirement, taxpayers must file an FBAR. This filing is required regardless of whether income associated with the accounts is taxable in the United States. The FBAR is due on or before June 30 following the calendar year the account is reported. There is no filing extension.
In general, the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account. The civil penalty for a nonwillful violation is not more than $10,000.
Voluntary Disclosure
The IRS has a voluntary disclosure practice in place for offshore accounts, as outlined in its Criminal Manual. This disclosure practice addresses criminal matters in connection with offshore accounts. On March 23, 2009, the IRS issued a memorandum communicating a framework for resolving the civil side of offshore voluntary disclosure. The memorandum primarily addresses unreported taxable offshore income. In connection with this memorandum, the IRS provided a series of frequently asked questions (FAQs) that provide guidance on the new internal procedures. One of these FAQs addresses the issue of taxpayers that have properly reported taxable income but inadvertently failed to file the applicable FBAR.
Delinquent FBAR Filing Requirements
Taxpayers who reported and paid tax on all their taxable income for prior years but did not file an FBAR should file the delinquent FBAR reports according to the instructions and attach a statement explaining the delinquency. In addition, taxpayers should send copies of delinquent FBARs, together with copies of tax returns for all relevant years to the Philadelphia Offshore Identification Unit by Sept. 23, 2009. The IRS has indicated that it will not impose a penalty for the inadvertent failure to file an FBAR provided the delinquency is remedied by this date.
Contact Information
If you have questions regarding the IRS’ new guidance on offshore accounts or other international tax issues, please contact Mike Granberg at 630.586.5163 or mike.granberg@crowehorwath.com or Darin Orr at 502.420.4427 or
darin.orr@crowehorwath.com with Crowe Horwath LLP’s International Tax group.
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Under U.S. Treasury rules issued in 2005, we must inform you that any advice in this communication to you was not intended or written to be used, and cannot be used, to avoid any government penalties that may be imposed on a taxpayer.
