The IRS today announced a very brief extension of the current initiative aimed at facilitating the disclosure of previously hidden offshore accounts. The settlement program was due to expire on September 23rd, but it has now been extended to October 15th, giving taxpayers another three weeks to come forward with information about their previously undisclosed foreign bank and financial accounts.
- Here’s a link to my article as previously published in The Freestate Accountant explaining the IRS offshore account disclosure program .
- And here’s a link to the official IRS announcement earlier this morning
In addition to those who may have opened offshore accounts specifically to hide income that was not reported on their U.S. tax returns, it is common to find that people who move to the U.S. from other places keep the various bank accounts that they had when they lived elsewhere. But once they are in the U.S. and have become “U.S. persons” for tax purposes (by becoming citizens or resident aliens), those accounts become from the perspective of the U.S. Internal Revenue Code “offshore” accounts. Not only does the income from such accounts have to be reported on the owners’ U.S. income tax returns, but simply having such an account triggers a whole list of reporting requirements, including the obligation to file a Treasury Department Form 90-22.1 Report or Foreign Bank and Financial Accounts (commonly called an “FBAR”). Penalties for failure to file the FBARs and other required reports are quite severe. And there is always the risk of criminal prosecution for the unreported income.
The IRS settlement initiative removes the risk of criminal prosecution, and limits the civil penalties. The penalties to be applied under the terms of the IRS program are an accuracy-related penalty of 20% of the underreported tax, and an additional penalty of 20% of the largest balance in the foreign account(s) during the prior six years (in lieu of the huge FBAR penalties that could otherwise apply).
The mechanics for submitting voluntary disclosures under the program are very specific, and are explained in my previous article shown above. Also, here’s a link to the IRS’s previous announcements about the procedures for making the required disclosures: https://www.irs.gov/newsroom/article/0,,id=206012,00.html.