Assistance for Delinquent U.S. Taxpayers

by Stephen Boush, 02/01/2014


The US Internal Revenue Service (IRS) announced a new program effective September 1, 2012, to help US taxpayers overseas to “catch up” with filing obligations.

If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, you may be required to report the account yearly to the Internal Revenue Service by filing Form TD F 90-22.1 otherwise known as the Report of Foreign Bank and Financial Accounts (FBAR).

The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The FBAR 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.

The IRS is aware that some US taxpayers living abroad have failed to timely file US federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs).  Some of these taxpayers have recently become aware of their filing requirements and want to comply with the law, but hesitate to do so because of concern for potential penalties.

Who Must File an FBAR
United States persons are required to file an FBAR if:
1. The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.

United States person means United States citizens; United States residents; entities, including but not limited to, corporations, partnerships, or limited liability companies created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.

Taxpayers delinquent in filing either annual tax returns or annual FBAR reports can do the following:
- File tax returns for the past three years and pay any resulting tax due.  It is believed that the IRS will waive late filing and late payment penalties if the tax due for any single year is less than $1,500.00.
- File FBAR reports for the past six years (or since the overseas account was opened if less than six years).
  These reports should be accompanied by a statement explaining why the taxpayer failed to file timely reports.  Ignorance of the requirement, fear of penalties once the original due date past, or other similar reasons would appear to meet this requirement.

Reporting and Filing Information
The FBAR is not filed with the filer's federal income tax return. The granting, by the IRS, of an extension to file federal income tax returns does not extend the due date for filing an FBAR. You may not request an extension for filing the FBAR. The FBAR is an annual report and must be received by the Department of the Treasury in Detroit, MI, at one of the address below, on or before June 30th of the year following the calendar year being reported.

For most taxpayers that will be it.  For delinquent FBAR filers that present higher compliance risk there may be a more thorough review.  These reviews will normally occur in the cases of extremely high net worth individuals, or in cases where the US government has concerns about terrorist or drug trafficking connections.

New Reporting Requirements by U.S. Taxpayers Holding Foreign Financial Assets (Form 8938)
Taxpayers with specified foreign financial assets that exceed certain thresholds must also report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. The new Form 8938 filing requirement does not replace or otherwise affect a taxpayers requirement to file FBAR. A chart providing a comparison of Form 8938 and FBAR requirements, and other information to help taxpayers determine if they are required to file Form 8938, may be accessed from the IRS Foreign Account Tax Compliance Act Web page.

For more information visit the IRS website.  You may also e-mail stephen.boush@tietax.com with additional questions. See the K4E Directory for more information on the services provided by TieTax

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