IRS Extends Deadline for Voluntary Disclosure of Offshore Bank Accounts

On Monday, September 21, 2009, the Internal Revenue Service (IRS) announced that it was extending the deadline for taxpayers to voluntarily disclose their foreign bank accounts under the IRS’s new settlement initiative.  This settlement program provides for significantly reduced civil penalties and immunity from most criminal prosecution provided a taxpayer voluntarily reports the existence of their foreign bank or financial accounts. 

Any U.S. person having a financial interest in, or signatory or other authority over, foreign bank or financial accounts is required to file a Treasury Department Form TD F 90.22-1 (Report of Foreign Bank and Financial Accounts, or “FBAR”) if the aggregate balances of such foreign accounts exceed $10,000 at any time during the year.  The FBAR is designed to provide information for use in criminal, tax or regulatory investigations or proceedings, and the penalty for failure to file the required reports can range from $10,000 (for non-willful violations), to the greater of $100,000 or 50% of the value in the accounts, including the possibility of imprisonment (for willful violations).   Other civil penalties include fraud related penalties that can be up to 75% of any tax due.  Certain other “accuracy related” penalties may also be assessed on the failure to report income associated with the foreign bank accounts, and additional penalties may be assessed for failure to file certain information returns. 

Under normal circumstances, the FBAR must be received by the IRS on or before June 30 of each year; however, under a newly instituted voluntary disclosure program, the IRS is extending this deadline for certain taxpayers to October 15, 2009.  The settlement program reduces the accuracy related penalties to 20% of the tax due, and the FBAR penalties to 20% of the value of the accounts.  The reduced 20% FBAR penalty is also in lieu of all other penalties that may be assessed in relation to the failure to report the existence of the foreign account (such as penalties for failure to file certain information returns).  To qualify for the settlement program, taxpayers must submit the past six years of tax returns and delinquent FBAR forms, as well as certain other specified information to the IRS by October 15, 2009.

For taxpayers who reported and paid tax on all taxable income but did not file FBARs, they should not use the voluntary disclosure process.  Instead, these taxpayers should file the delinquent FBAR reports according to the instructions and attach a statement explaining why the reports are filed late.  Copies of the delinquent FBARs, together with copies of tax returns for all relevant years should also be sent to the IRS Offshore Identification Unit in Philadelphia.  The deadline for these submissions has also been extended to October 15, 2009.  Under these circumstances, the IRS will not impose a penalty for the failure to file the FBARs.

For more information on the FBAR reports or the IRS’s new settlement initiative please visit the IRS: http://www.irs.gov/newsroom/article/0,,id=206012,00.html?portlet=7.