Thursday, 13 December 2012

Deadline to report Foreign Account Holdings

The deadline (June 30, 2012) for certain taxpayers to report accounts they hold in foreign banks and other financial institutions has gone by .

By June 30, 2012, citizens and residents of the United States, as well as domestic partnerships, corporations, estates and trusts, must generally file Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts (FBAR) if:

An "Issue of Fundamental Fairness" 
In a speech in April, IRS Commissioner Douglas H. Shulman said, "We view offshore tax evasion asan issue of fundamental fairness. Wealthy people who unlawfully hide their money offshore aren't paying the taxes they owe, while schoolteachers, firefighters and other ordinary citizens who play by the rules are forced to pick up the slack."
Over the past four years, Shulman explained, the IRS has "significantly increased" the resources and focus on offshore tax evasion.
The IRS has also given taxpayers a chance to come forward voluntarily and avoid criminal charges.
Through the end of 2011, the IRS has had approximately 33,000 voluntary disclosures from individuals who came in under several special programs started in 2009. To date, these individuals have paid back taxes and penalties amounting to more than $4.4 billion.
"We are now mining the information we have received to date and have launched our next wave of investigations on banks, bankers, intermediaries and taxpayers," Shulman said.
 They have a direct or indirect financial interest in, or signature authority over, one or more accounts in a foreign country. This includes bank accounts, brokerage accounts, mutual funds, trusts or other types of foreign financial accounts.

2. The total value of the accounts exceeds $10,000 at any time during the calendar year.
Taxpayers also may be subject to FBAR compliance if they file an information return related to: certain foreign corporations (Form 5471); foreign partnerships (Form 8865); foreign disregarded entities (Form 8858); or transactions with foreign trusts and receipt of certain foreign gifts (Form 3520).
Some individuals are exempt.
Exceptions to the Reporting RequirementThere are FBAR filing exceptions for the following United States persons or foreign financial accounts:
  • Certain foreign financial accounts jointly owned by spouses;
  • United States persons included in a consolidated FBAR;
  • Correspondent/nostro accounts;
  • Foreign financial accounts owned by a governmental entity;
  • Foreign financial accounts owned by an international financial institution;
  • IRA owners and beneficiaries;
  • Participants in and beneficiaries of tax-qualified retirement plans; and
  • Certain individuals with signature authority over, but no financial interest in, a foreign financial account.
To determine eligibility for an exception, consult with your tax adviser.
Take the FBAR requirement seriously. Several legislative changes, as well as a clarification of the IRS's interpretation of the "willful standard," have led to increased enforcement and stiffer penalties for noncompliance of foreign account reporting requirements.

The IRS states that the form "is a tool to help the United States government identify persons who may be using foreign financial accounts to circumvent United States law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad."

Failing to file an FBAR can result in the following penalties:
  • A civil penalty of as much as $10,000 if the failure was not willful. This penalty may be waived if income from the account was properly reported on the income tax return and there was reasonable cause for not reporting it.
  • A civil penalty equal to the greater of 50 percent of the account, or $100,000, if the failure to report was willful.
  • Criminal penalties and time in prison.
Consult with your tax adviser if you have an interest in, or authority over, a foreign account. Your tax adviser can ensure you meet the reporting requirements and remain in compliance with the law.

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