OVDI 3.0 Is Here
If you are an Americans citizen living overseas you may have recently realized that you are behind on your FBAR reports. The FBAR is a form that must be filed with the U.S. Department of the Treasury by any U.S. Person who has over $10,000 in overseas bank or financial accounts (at any point during the year). IRS has been fairly vocal by going after individuals who failed to file - bringing large penalties and potentially criminal prosecution. However, this latest Offshore Voluntary Disclosure Program (its third) as a way to encourage individuals to come forward with their offshore accounts.
IRS had so much fun with last two Disclosure Programs that they have just decided (January 9th, 2012) to bring it back for the third time - OVDI 3.0 (please see this official release from the IRS: http://www.irs.gov/newsroom/article/0,,id=252162,00.html and our blog post on this: http://blog.taxesforexpats.com/2012/01/11/ovdi-is-back/)
Last December the IRS issued a note Information for US Citizens or Dual Citizens Residing Outside the US, stating:
“Note that penalties will not be imposed in all cases. As discussed in more detail below, taxpayers who owe no U.S. tax (e.g., due to the application of the foreign earned income exclusion or foreign tax credits) will owe no failure to file or failure to pay penalties. In addition, no FBAR penalty applies in the case of a violation that the IRS determines was due to reasonable cause.”
What this means is that US citizens living overseas will not owe penalties if they do not owe taxes on their tax return and that the IRS will not impose a penalty for not filing the FBARs if you have a valid reason (for example not knowing that you needed to file it). This is great news that should motivate any late filers to come forward and get compliant before the government finds you first (which they will via FATCA). You can view the full article on the IRS site.
How Back Taxes Matter
The FBAR is not meant to be filed together with the federal tax return. However, you cannot file delinquent FBAR forms and avoid penalties unless you have a full clearance from the IRS. This means filing all past Tax Returns before participating in the OVDI!
If you violate the FBAR filing requirements, whether or not the violation was intentional, you may be subject to both civil and criminal penalties for the same violation. That said, it is important that you do not let concerns over potential penalties deter you from filing a delinquent FBAR form. Here is why:
This is what the IRS promises to the late FBAR filers:
For taxpayers who reported and paid tax on all their taxable income for prior years but did not file FBARs, you should file the delinquent FBAR reports according to the instructions and attach a statement explaining why the reports are filed late. ...The IRS will not impose a penalty for the failure to file the FBARs. (2011 Offshore Voluntary Disclosure Initiative Frequently Asked Questions and Answers FAQ 17)
Do not play double jeopardy! Non-filing tax returns puts you at risk (we describe the reasons on this page - Why Expats Should File US Tax Return). However, failure to file the FBAR is an even bigger risk, especially since FATCA has been enacted (You should really be sitting down before clicking on this link - Penalties for Not Filing FBAR).
How We Can Help
The latest Offshore Voluntary Disclosure Initiative allows you to come clean and get back in the good graces of the IRS / Treasury Department. This is the sequence of events that you would have to follow:
- File your delinquent tax returns. We can prepare them for you (having done this for hundreds of clients in the past). If you are filing for 3 years or more, we offer a 20% discount to our regular $349 flat fee.
- Once your tax returns are filed and U.S. taxes are paid (if you have tax due), we will help you fill our the Form TD F 90-22.1. Our fee for this service is $100 per one TD F 90-22.1 form (including 3 bank accounts).