TaxBarron Report
June 2009

This month US persons with foreign financial holdings are obliged to file TD F 90-22.1, the Report of Foreign Bank and Financial Accounts. Due 30 June 2009 at the US Department of Treasury in Detroit, the report has become so critical in terms of IRS enforcement that the TaxBarron Report is devoting most of this issue's space to this topic. If you have not filed and intend to do so, the form and instructions are available at the IRS website. For previous issues of the TaxBarron Report, click here.

In This Issue:

FBAR Reporting Due 30 June

IRS Offers Tax Amnesty

Tax Quiz

Noncompliance Penalties

Some FBAR Opposing Remarks from ACA

PONDERABLES

Recommended

FBAR Reporting Due 30 June

US persons with financial interests in or signatory authority over one or more foreign financial accounts whose aggregate value exceeded $10,000 at any time in 2008 are required to file Form TD F 90-1 - REPORT OF FOREIGN BANK AND FINANCIAL ACCOUNTS (FBAR). This report is due 30 June 2009.

FBAR is a law enforcement vehicle under the Bank Secrecy Act. It provides important information to domestic and international law enforcement agencies.

Failure to file FBAR can result in non-compliers being fined $10,000. As a six year statute of limitations applies, fines could be as much as $60,000. Further, the Internal Revenue Service can seek criminal penalties.

In referring to its instructions in the July 2000 version of FBAR, IRS defines a U.S. person as 1) a citizen or resident of the United States, 2) a domestic partnership, 3) a domestic corporation, or 4) a domestic estate or trust.

What constitutes the financial interests of US persons include banks, securities, or other financial accounts in one or more foreign countries for which the owner of record or holder of legal title is: (a) a person acting as an agent, nominee, attorney, or in some other capacity on behalf of the US person; (b) a corporation in which the United States person owns directly or indirectly more than 50 percent of the total value of shares of stock or more than 50 percent of the voting power for all shares of stock; (c) a partnership in which the United States person owns an interest in more than 50 percent of the profits (distributive share of income, taking into account any special allocation agreement) or more than 50 percent of the capital of the partnership; or (d) a trust in which the United States person either has a present beneficial interest, either directly or indirectly, in more than 50 percent of the assets or from which such person receives more than 50 percent of the current income. Basically speaking, if an American expatriate in 2008 had over $10,000 in one or more foreign financial accounts, he or she is obliged to file FBAR.

The complexity of the rules are such that taxpayers might well consult a professional person familiar with the FBAR reporting rules. A very excellent Guide to Reporting Foreign Financial Accounts is available from Vernon Jacobs, CPA, consultant and author.

 

IRS Offers Tax Amnesty

On 27 March 2009, the Internal Revenue Service announced a six month amnesty for Americans to emerge from the obscurity of noncompliance by voluntarily reporting their worldwide income, gains, bank accounts, trusts and other entities. Americans are required to file annual tax returns reporting global income. Yet only approximately one-third do so. And those who file those intrusive annual FBAR reports are only 20%. Voluntary disclosure simply means reporting previously undisclosed income by filing an amended or delinquent tax return. IRS considers voluntary disclosure relevant where otherwise a noncompliant taxpayer could be referred to the US Department of Justice for possible criminal prosecution or at the least an examination of prior year tax returns.

In addition to tax treaties with other nations for sharing tax information, IRS is relentlessly increasing its efforts to identity taxpayers who may have income earned and assets preserved in foreign financial accounts. IRS considers overseas compliance so important that it is even rewarding informants. It is expected that the Service will be granted increased powers later this year for enforcing international tax compliance.

To comply with US tax rules, taxpayers must substantiate all items of income; file or amend tax returns for up to the previous six years; pay all taxes, interest and penalties; file the FBAR report; and cooperate with IRS in the event their tax return is selected for audit.

Tax Quiz

ANSWER TO LAST REPORT'S QUIZ: No. The IRS has ruled that the income remains exempt from US tax even though the nonresident alien spouse makes the election to file a joint return with her US citizen spouse. The election does not constitute a waiver of the privileges under Sections 893 or 247 and the Immigration and Nationality Act.

THIS MONTH'S QUIZ: Can I claim my spouse as a dependent if I file a Married Filing Separate tax return?

 

Noncompliance Penalties

The US Treasury Department has in place the following civil penalties for FBAR reporting deficiencies:

Negligence: Up to $500

Non-Willful Violation: Up to $10,000 for each violation.

Pattern of Negligent Activity: In addition to $10,000 penalty, $50,000.

Willful-Failure to File FBAR or Retain Records of Account: Up to the greater of $100,000 or 50% of the financial account amount at the time of violation.

Knowingly Filing False FBAR: Up to the greater of $100,000 or 50% of the amount in the financial account at the time of violation.

 

Some FBAR Opposing Remarks from ACA

Recently a representative of American Citizens Abroad had this to say about the IRS tax amnesty: 'We've long known that Uncle Sam has a malignant obsession with overseas Americans, but this latest (Tax Amnesty) fiasco indicates that the pathology just seems to become ever more sadistic. It's really too bad we can't somehow find a therapist and a large enough couch to lie Sam down, let him pour out all of these frustrations, and just get over it, once and for all.

The IRS this time apparently thinks it is offering us (Americans abroad) a tempting amnesty. But if you look more closely, it is rather more akin to urging us to commit financial suicide.

Even if you accept the alleged good intentions of the indulgence proposed here, with respect to penalties for overdue tax filings and bank account reports, if you then follow their advice you will still be economically destroyed. And in the case of unreported bank accounts, all of this tedious reporting of every one of your overseas bank accounts, in much greater detail as of this year, was from the very beginning always supposed to be only to help them somehow fight against major international financial crime.'

The representative in his comments argues that IRS can impose significant penalties for both unpaid income taxes up to six years and for failure to file FBARs (hence financial suicide). Further, he believes that passport control may soon be linked to IRS targeting Americans from abroad. And he informs that the Treasury Department will reward anyone who informs on an American with an unreported foreign account.

'No other country', he concludes his arguments, 'has ever concocted such a lethal set of financial weapons targeted at its own citizens.'

PONDERABLES

The inability of a society to conduct business on a hand-shake destablizes commerce and engenders restrictions. - Anonymous

Character counts more than any other possession as security against dishonesty. It is worth more than any stock in Wall Street. - J Pierpont Morgan

The stability of every human transaction depends on trustworthiness. It is the key to the maintenance of unity between diverse peoples. Those who wield authority bear a great respnsibility to be worthy of public trust. - BIC on Development

Recommended

Tax Reform for Americans Abroad

Federal Tax Information for Americans Abroad

Alert to Americans Overseas About Taxes

IRS FBAR FAQS