Wednesday, 11 January 2012

IRS penalties on submission of tax returns & FBAR forms

If you are a US Citizen residing abroad, you should prioritize prompt filing of  both US income tax returns and also FBAR forms every year (reporting non-US bank and financial accounts). US government numbers indicate that several million honest folks around the world have simply not been doing this.

After many years of requests, the IRS have at long last relented and agreed publicly not to charge penalties if there is “reasonable cause” for not sending in all of the forms on time. As with so much of the tax law, reasonable cause is a complicated concept which can only be decided based on the specific facts in each case.

The new IRS rule does mean that every time an FBAR is sent late the IRS is expecting a letter explaining why penalties should not be charged. This letter is a document that needs extremely detailed and careful drafting. Getting just a few words wrong could truly lead to huge penalties - in some cases even running into the millions of dollars.

1. Ensure every FBAR has been filed for the last 6 years
2. If anything “irregular” shows up, file these late FBARs within the next few weeks, together with a reasonable cause request
3. Always – without fail – get a professional opinion on the reasonable cause wording because the risk is just too big for anyone to ever try to do this without help.

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