Tax Law Center Blog

By Parag P. Patel, Esq. | Updated December 12, 2011

In a fact sheet (IRS FS-2011-13) released last week, the IRS reminded U.S. citizens and dual citizens of the United States and foreign countries who live abroad about U.S. filing requirements, including Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).  No new developments are provided, only reminders of existing laws and regulations.

Some dual-citizen taxpayers may have only recently learned about their obligation to file U.S. income tax returns or FBARs, the IRS said in the fact sheet.

Generally, FBAR must be filed by U.S. persons having a financial interest in or signature authority or other authority over any financial account in a foreign country if the aggregate value of the accounts exceeds $10,000 at any time during the calendar year. The normal annual filing date for FBAR is June 30. While the Association of Americans Resident Overseas estimates that some 6.32 million Americans live abroad, the Treasury Inspector General for Tax Administration reports that only a little more than 534,000 FBARs were filed in 2009.

FBAR discloses the foreign interest or account to the IRS and does not impose a tax, although failure to file it can incur penalties. Non-willful failure to file may be penalized by up to $10,000 per violation, unless the failure was due to reasonable cause. A willful failure to file can be subject to a higher civil penalty (up to $100,000 or 50% of the balance of the foreign account, whichever is greater) and criminal penalties.

In the fact sheet, the IRS gave examples of factors that, considered along with all the facts and circumstances, could point to reasonable cause for non-willful failure to file an FBAR and therefore a lesser or no penalty:

Reliance upon the advice of a professional tax adviser who was informed of the existence of a foreign financial account;
A lack of any intentional effort to conceal income or assets related to an unreported foreign account that was established for a legitimate purpose; and a lack of any material tax deficiency related to an unreported foreign account.

Factors identified as potentially weighing against a finding of reasonable cause, on the other hand, were:

Failure by the taxpayer to disclose a foreign financial account to his or her tax return preparer; Background and education of the taxpayer indicating that he or she should have known of the FBAR reporting requirements; and  A tax deficiency related to the unreported foreign account.

The fact sheet advised taxpayers who learn belatedly of their FBAR filing requirement for earlier years (within the six-year statute of limitation) to file the delinquent FBARs and attach a statement explaining why they are late.

The fact sheet also advised of basic federal income tax filing and payment requirements and related penalties and described reasonable-cause factors for those lapses. It reminds U.S. citizens and dual citizens that they are required to report their worldwide income on their federal tax return.

In addition, the fact sheet reminds taxpayers that Foreign Account Tax Compliance Act reporting of specified foreign financial assets on income tax returns will be required starting in 2012. Notice 2011-55, issued last summer, suspended the requirement until a final version of Form 8938 is released. The IRS has said it intends to release the form, along with new guidance, before the end of this month.

Although, the IRS provided no new developments and only reminders of existing laws and regulations, the announcement re-affirms the IRS’ aggressive stance on tax enforcement of offshore activities.

Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign accounts.

About the Author

Parag P. Patel, Esq. brings over three decades of experience to individuals and businesses facing complex tax problems. Holding advanced degrees from Georgetown University Law Center (J.D.) and New York University School of Law (LL.M. in Tax Law), the nation’s top tax programs, Mr. Patel delivers sophisticated and creative strategies in complicated federal and state audits, penalty abatements, and foreign asset/income reporting. His practice emphasizes international tax matters, specifically foreign financial account reporting (FBAR), voluntary disclosures, and penalty defense.

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