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| Focus On Taxes: Voluntary Disclosure - Report of Foreign Financial Accounts |
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If there is a possibility that one or more Treasury Forms 90.22-1 may not have been filed in prior years; or, if there is a possibility that income from foreign financial accounts was not properly included on a U.S. tax return, you may be able to participate in a voluntary disclosure program. The IRS is very serious about the requirement that all U.S. taxpayers and certain non-U.S. taxpayers that file U.S. tax returns are to file Treasury Form 90-22.1 (“TDF”). This form is required to report each and every foreign financial account directly or indirectly owned, if certain monetary thresholds are satisfied. The TDF to report foreign financial accounts for the 2008 tax year must be filed by June 30. Civil penalties for failure to report foreign bank and other financial accounts start at $10,000 per account for each year the particular account is unreported.
The purpose of this eFocus is to advise you of an opportunity:
The Internal Revenue Service ("IRS") implemented a short-term voluntary disclosure program to allow taxpayers to come forth and report for prior years. The program ends during September 2009. Voluntary Disclosure Program Opportunities for Reporting Foreign Financial Accounts
Situation 1: Indirect Ownership
All income has been reported for indirect foreign ownership, but the TDF has not been filed.
Those taxpayers that have properly reported income earned in their foreign bank and other financial accounts and the existence of those accounts on timely filed:
BUT FAILED TO FILE the foreign financial account Form TDF can voluntarily file prior year’s returns under a special voluntary disclosure program. In this case, the Form TDF can be filed without paying any penalties.
Situation 2: Direct Ownership
All income has been reported for direct US ownership, but the TDF has not been filed. We believe that taxpayers who have direct ownership of foreign bank and other financial accounts that reported all of the income from those accounts and all of the investment gains in those accounts on Forms 1040, Forms 1120, Forms 1120S and/or Forms 1065 but failed to file the foreign financial account Form TDF may also be able to voluntarily file prior year’s returns under a special voluntary disclosure program without paying any penalties.
Situation 3: Failure to report income and file the TDF
Taxpayers that have not reported the income from their foreign financial accounts and have not reported the existence of their foreign financial accounts may participate in a different voluntary disclosure program.
Under this program, taxpayers are required to comply with each of the following conditions for 2003 through 2008:
While these penalties may prove costly, we believe there are many advantages to participating in this program. Key advantages are:
The voluntary disclosure program is available until the middle of September. There is essentially a three-step process for this voluntary disclosure program:
Step 1
The taxpayer's representative contacts the Criminal Investigation Unit (CI) in the taxpayer's state and discloses the taxpayer's name and tax identification number. After a discussion and information gathering the CI agent determines whether the taxpayer is allowed to participate in the program. If the taxpayer is permitted to participate, the CI agent issues a letter indicating this.
Step 2
The CI agent turns the taxpayer's file over to a Civil Investigation agent. The taxpayer and the taxpayer's representative meet with the CI agent to agree on the data that is to be provided.
Step 3
The information is submitted to the Investigative Unit in Philadelphia where the data is processed and the taxpayer's liability is finally calculated. Because these processes take time, we suggest that clients wanting to participate in one of the voluntary programs mentioned above should consider beginning the disclosure process as soon as possible. If you have any questions about the filing requirements and the voluntary disclosure program procedures, please contact your RubinBrown advisor.
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