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Wednesday, June 29, 2011

IRS Reminds Taxpayers to Report Foreign Accounts by June 30 Deadline

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In Information Release 2011-70 (6/24/11), the IRS reminded those who have bank or other financial accounts in a foreign country, or who have signature authority over such an account, that they may be required to report the account to the Treasury Department by June 30. Filing is required for qualified pension plans and IRAs. Participants and beneficiaries in retirement plans under Code §§401(a), 403(a) or 403(b) and owners and beneficiaries of traditional IRAs, IRA annuities, SEP IRAs, SIMPLE IRAs, and deemed IRAs under §408 and Roth IRAs under §408A are not required to file an FBAR for a foreign financial account held by or on behalf of the retirement plan or IRA.

The IRS noted that U.S. persons are required to file a Report of Foreign Bank and Financial Accounts (FBAR), Treasury Department Form TD F 90-22.1, each year if they have a financial interest in or signature authority over financial accounts, including bank, securities or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year. U.S. persons that have signature authority over a foreign financial account must comply with this reporting requirement even if the account is reported on an FBAR filed by the account owner or other person that has a financial interest in the account. Moreover, foreign account owners may have to report their accounts to Treasury even if the accounts do not generate any taxable income.Treasury regulations define a U.S. person as: (1) a U.S. citizen; (2) a U.S. resident; or (3) any entity (including but not limited to, a corporation, partnership, trust, or limited liability company) created, organized or formed under the laws of the United States, a state, the District of Columbia, territories and insular possessions, and Indian tribes. Generally, a person has signature or other authority over an account if the person (alone or in conjunction with another) has the authority to control the disposition of money, funds or other assets held in a financial account by direct communication (in writing or otherwise) to the person with which the account is maintained.

For 2010, the due date for filing the FBAR is June 30, 2011, although some financial professionals will have until June 30, 2012 to file. However, for 2009 and earlier years, the due date is generally November 1, 2011, for individuals whose filing deadline was properly deferred under Notice 2009-62 or Notice 2010-23, and who have no financial interest in a foreign financial account but with signature or other authority over that account. Unlike with federal income tax returns, requests for extensions of time to file an FBAR are not granted. Also, the FBAR is not an income tax return and should not be mailed with any income tax returns.

Civil FBAR noncompliance penalties for a non-willful violation can range up to $10,000 per violation. Civil penalties for a willful violation can range up to the greater of $100,000 or 50% of the amount in the account at the time of the violation. Criminal penalties for violating the FBAR requirements while also violating certain other laws can range up to a $500,000 fine or 10 years imprisonment or both. Civil and criminal penalties may be imposed together. If you learn you were required to file FBARs for earlier years, you should file the delinquent FBAR reports and attach a statement explaining why the reports are filed late. No penalty will be asserted if IRS determines that the late filings were due to reasonable cause. If, however, you have any unreported taxable income related to the foreign accounts, you should instead follow the procedures for making a voluntary disclosure to IRS under the 2011 Offshore Voluntary Disclosure Initiative.

-- Mark C. Wolf, Tax Law Editor (Compensation Planning)
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