Friday July 29, 2011

In this issue:

• Time Running Out to Participate in 2011 IRS Foreign Financial Account Disclosure Initiative

Time Running Out to Participate in 2011 IRS Foreign Financial Account Disclosure Initiative

Only One Month Remains to Participate

If you have assets in a foreign bank or securities account then you likely have an annual reporting obligation to the United States government.  If you have not complied by filing Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts or FBAR) on an annual basis, then you should consider disclosing under a temporary relief provision or the IRS’s 2011 Voluntary Disclosure Initiative, both of which expire on August 31, 2011.  The temporary relief offered is generous, especially to those who have reported all of their foreign income on their federal income tax returns.   

Who Must File FBARs?

U.S. citizens or resident aliens (including resident aliens in the U.S. on visas) who have a financial interest in or signature authority over foreign financial accounts with a total aggregate value in excess of $10,000 during any part of a year must file an FBAR.  FBARs must be filed even if the foreign accounts do not produce any income.  FBARs are due by June 30 for the preceding calendar year.

What if You Don’t File?

Significant penalties may apply.  Non-willful violations could be as high as $10,000 per violation per year.  If the failure to file is deemed willful, the penalty is the greater of $100,000 or 50% of the amount that was not disclosed for each year a violation occurs.  Non-filers may also be subject to criminal penalties and prosecution.

If You Reported All of Your Income (or the Account Did Not Generate Income): Filing Alone May Avoid Penalties if Done by August 31

If you reported all of the income generated by the foreign account, or the foreign account did not generate any income, you may be able to cure an FBAR filing delinquency without being subject to civil or criminal penalties.  In order to obtain relief, you must file delinquent FBARs with an explanatory statement by August 31, 2011.

If You Failed to Disclose Income Related to the Foreign Account: Penalty Reduction Available if Filing Occurs Before August 31

If you failed to report your income from the foreign account, then you should consider participating in the IRS’s 2011 Voluntary Disclosure Initiative.  Reduced penalty rates of 5%, 12.5%, or 25% may apply, provided that you file amended income tax returns and pay all taxes, interest, and accuracy-related penalties associated with the unreported income, and commence such filings by August 31, 2011.  Also, taxpayers who participated in the IRS’s 2009 Initiative, which provided a 20% penalty, may wish to participate to qualify for the reduced rates provided by the 2011 Initiative.

The attorneys of Williams Coulson have successfully advised many clients on FBAR matters, including matters related to the 2011 Initiative, and are available to address any questions you may have.

IRS CIRCULAR 230 TAX ADVICE DISCLAIMER: Any federal tax advice contained in this communication (including attachments or enclosures) is not intended or written to be used, and it cannot be used, for the purpose of (1) avoiding any penalty that may be imposed by the Internal Revenue Service or (2) promoting, marketing or recommending any transaction or matter.

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