On February 8, 2011, the IRS announced a special voluntary
disclosure initiative that will be available through August 31,
2011, for taxpayers who have undisclosed foreign financial
accounts.
Individuals and entities subject to the jurisdiction of the United
States are required to submit Form TD F 90-22.1, the Report of
Foreign Bank and Financial Accounts (FBAR), on or before June 30 of
each year to report any financial interest in or signature
authority over foreign financial accounts maintained during the
previous calendar year if the aggregate value of those accounts
exceeded $10,000. Taxpayers who fail to file FBARs could
potentially face both criminal prosecution and civil penalties of
up to 50 percent of the total balance of the foreign accounts for
each annual violation.
In response to widespread failure to comply with the FBAR filing
requirements and the obligation of U.S. taxpayers to report all
worldwide income, the IRS and the U.S. Department of Justice
launched significant efforts to bring taxpayers with foreign assets
and income into compliance. Over the last three years, these
enhanced enforcement efforts have resulted in increased criminal
prosecutions and civil penalties, as well as cooperation from
foreign governments and banks in a number of jurisdictions that
previously safeguarded the identities of their accountholders.
While steadily increasing the risk that taxpayers with undisclosed
foreign financial accounts will get caught, the IRS continues to
encourage taxpayers to come forward voluntarily to report prior
noncompliance.
The first special voluntary disclosure program for offshore
accounts closed on October 15, 2009, with over 15,000 taxpayer
participants. The IRS decided to open a second disclosure
initiative following continued interest from taxpayers with foreign
accounts, including approximately 3,000 taxpayer submissions after
the official close of the 2009 program.
Under the 2011 initiative, individuals are subject to a penalty of
up to 25 percent of the amount in the foreign bank accounts in the
year with the highest aggregate account balance between 2003 and
2010. Some taxpayers will be eligible for 5 percent or 12.5 percent
penalties. Participants also must pay back taxes and interest for
up to eight years, along with accuracy-related and delinquency
penalties. If a taxpayer makes a timely, truthful and complete
disclosure prior to the deadline, the IRS will not recommend
criminal prosecution.
Unlike the 2009 program, in which submission of the taxpayer's
identifying information to the IRS prior to the October 15, 2009,
deadline was sufficient to participate in the program, the 2011
initiative requires submission of a complete and extensive package
of information and payment of the amounts owed to the IRS prior to
the August 31, 2011, deadline.
We strongly encourage any U.S. taxpayers with undisclosed foreign
accounts to consider participation in this disclosure initiative
promptly.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.