FBARs (Foreign Bank and Financial Accounts Report Form TD F 90-22.1) are due June 30th. If you or your clients have $10,000 or more in offshore financial accounts and are U.S. citizens, residents and/or U.S. based entities, use this form to report a financial interest in or signatory authority over foreign accounts. In recent years, the IRS has increased enforcement of this required disclosure, and penalties for failure to file the FBAR include hefty fines and in some cases jail time.
To ensure compliance, it is critical you complete the TDF 90-22.1 as soon as possible since, unlike other IRS documents, the FBAR form must be received (not just postmarked) by the Saturday, June 30th deadline. Normally under the tax law if documents are due on a weekend the due date rolls over until the following business day; however, those rules don’t apply to FBARs so it appears that it will be necessary to mail the FBAR via overnight delivery service on the 28th so it arrives by the 29th. That being said the IRS FBAR hotline has informally advised our tax attorneys that FBARs postmarked by the 29th will be considered as timely. Failure to file on time could mean large penalties, and no extensions can be requested.
Some individuals with foreign bank accounts might have skipped filing FBAR forms in the past. If that includes you or your clients, you may wish to consider the Offshore Voluntary Disclosure Initiative (OVDI), which was created to gain compliance from taxpayers, who wish to comply with tax laws regarding their offshore accounts. The IRS declared its offshore voluntary program a big success in 2009 and 2011. In 2009 alone, the IRS collected $3.4 billion.Those who willfully fail to file an FBAR are subject to penalties as high as 50 percent of the total balance of the account. Each year of non-compliance results in a separate violation and penalty, i.e. multiple 50% penalties are possible. Under that scenario penalties can actually equal 300% of the offshore account balances.
Through OVDI, some taxpayers may be eligible for penalties as low as five percent, although most will be stuck with a 27.5% penalty. In order to participate in the program, taxpayers must file all original and amended returns (including payment of back taxes and interest) for up to eight tax years. For more details see our article here.
If someone wants to obtain the benefits of the Offshore Voluntary Disclosure Initiative, he or she cannot simply make a “quiet disclosure,” meaning they cannot simply file the FBAR and amend other tax returns. Those individuals who make “quiet disclosures” risk being investigated, and subject to large civil FBAR penalties, but may be protected from criminal tax exposure.
However, every case is different, and only a complete investigation of all the facts by a qualified tax lawyer can help a taxpayer make the right choice.