Many US citizens and other US resident persons are unaware that they are subject to reporting requirements concerning foreign investments. A United States resident person is an individual, a corporation, a partnership, a trust or estate, a joint stock company, an association, a syndicate, a joint venture, or other unincorporated organization or group. Failure to comply with these requirements exposes these citizens and resident persons to severe penalties. These penalties can be in the $10,000 to $500,000 range, depending on whether they are considered civil or criminal. The IRS has announced this new voluntary disclosure initiative, which provides an opportunity for compliance for any US person who was not aware of the disclosure requirement or who did not take advantage of the 2009 disclosure program.
The new voluntary disclosure initiative will be available through Aug. 31, 2011. The new initiative, called the 2011 Offshore Voluntary Disclosure Initiative (OVDI) – includes several changes from the 2009 Offshore Voluntary Disclosure Program (OVDP). For the 2011 initiative, there is a new penalty framework that requires individuals to pay a penalty of 25 percent of the amount in the foreign bank accounts in the year with highest aggregate account balance covering the 2003 to 2010 time period. Some taxpayers will be eligible for 5 or 12.5 percent penalties. Participants also must pay back-taxes and interest for up to eight years as well as paying accuracy related and/or delinquency penalties.
The purpose for the voluntary disclosure practice is to provide a way for taxpayers who did not report taxable income in the past to come forward voluntarily and resolve their tax matters. Thus, if you reported and paid tax on all taxable income but did not file FBARs, do not use the voluntary disclosure. You should file the delinquent FBAR reports with a statement explaining why the reports are late. The IRS will not impose the penalty for the failure to file information returns if there are no underreported tax liabilities and the information returns are filed by August 31, 2011.
The same opportunity described in the previous paragraph is also available for other tax information returns such as the Form 5471 for controlled foreign corporations and the Form 3520 for foreign trusts. As long as all taxable income has been reported and tax paid, these filers have until August 31, 2011 to bring them into compliance without penalty.
The deadline for both participation in the OVDI and the opportunity to file delinquent FBAR reports without penalty is August 31, 2011. Once this deadline has passed, original penalties will fall back in place. This is the perfect opportunity to inform your clients of possible reporting issues and to help bring them into compliance.
Contact Us:
To discuss your potential interest in our tax services, or for further information, please call Michelle Samuel at (716) 270-8105 or email msamuel@gkecpa.com |
