The Internal Revenue Service announced in a special voluntary disclosure initiative designed to bring offshore money back into the U.S. tax system and help people with undisclosed income from hidden offshore accounts get current with their taxes. The new voluntary disclosure initiative will be available through Aug. 31, 2011.
The objective of the OVDP is to bring taxpayers that have used undisclosed foreign accounts and undisclosed foreign entities to avoid or evade tax into compliance with United States tax laws. If you have foreign bank accounts and or assets overseas and have simply overlooked the disclosure of this you have the opportunity to correct this now.
A United States person that has a financial interest in or signature authority over foreign financial accounts must file a Report of Foreign Bank and Financial Accounts "FBAR" if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. The FBAR must be received by the Department of the Treasury on or before June 30th of the year immediately following the calendar year being reported. The June 30th filing date may not be extended.
If you have not filed FBAR's in the past then the IRS is providing the Amnesty Program until 8/31 to become compliant with tax laws.
Here are some FAQ's from the IRS regarding the 2011 Offshore Voluntary Disclosure Program:
Why should I make a voluntary disclosure? Taxpayers with undisclosed foreign accounts or entities should make a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. Making a voluntary disclosure also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues. Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, and an increased risk of criminal prosecution. The IRS remains actively engaged in ferreting out the identities of those with undisclosed foreign accounts. Moreover, increasingly this information is available to the IRS under tax treaties, through submissions by whistleblowers, and will become more available as the Foreign Account Tax Compliance Act (FATCA) and Foreign Financial Asset Reporting (new IRC § 6038D) become effective.
What are some of the civil penalties that might apply if I don't come in under voluntary disclosure and the IRS examines me? How do they work? A penalty for failing to file the Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an "FBAR"). United States citizens, residents and certain other persons must annually report 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. Generally, 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 per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.
What years are included in the 2011 OVDI disclosure period? Calendar year taxpayers must include tax years 2003 through 2010 in which they have undisclosed foreign accounts and/or undisclosed foreign entities. Fiscal year taxpayers must include fiscal years ending in calendar years 2003 through 2010.
What if I cannot make a complete submission by August 31, 2011? A taxpayer may request an extension of the deadline to complete his or her submission if the taxpayer can demonstrate a good faith attempt to fully comply with FAQ 25 on or before August 31, 2011. The good faith attempt to fully comply must include the properly completed and signed agreements to extend the period of time to assess tax (including tax penalties) and to assess FBAR penalties.
Requests for up to a 90 day extension must include a statement of those items that are missing, the reasons why they are not included, and the steps taken to secure them. Requests for extensions must be made in writing and sent to the Austin Campus on or before August 31, 2011:
Internal Revenue Service
3651 S. I H 35 Stop 4301 AUSC
Austin, TX 78741
ATTN: 2011 Offshore Voluntary Disclosure Initiative
Is income earned outside the US taxable on my U.S. Income Tax Return? YES, the US taxes all income earned all over the world. If you have not included income earned in foreign countries you would be required to file an amended tax return to include this income.
I have already paid tax in the foreign country, why do I have to pay tax in the US? The IRS allows for a tax credit on your tax return if you have paid foreign taxes to presumably offset the double taxation of the same income.
Contact us immediatlely if you have questions about this program and filing your 2011 FBAR as both are time sensative. The amnesty program expires 8/31 and the 2011 FBAR is due by 6/30.