Wednesday, June 27, 2012

Bellevue Tax Lawyer | 2012 OVDP FBAR Updates

The IRS published a new webpage today detailing the requirements for the 2012 OVDP, including a new FAQ.

The rules are basically the same as the 2011 OVDI.  One item to note is that the FAQs continue to state that if you have properly reported all of your foreign income, have not been audited in a previous year, but failed to file the FBAR (Form TD F 90-22.1) do not enter the program.  Instead, the FAQs (FAQ #17) state that the taxpayer should prepare the missing FBARs and submit them with a statement explaining why they were late.

A big change for the Canadians is that the new FAQ includes an option to make a late election using Form 8891 for Canadian RRSP, RRIF, and similar accounts.  If the late filing is accepted, the amounts in these Canadian accounts is excluded from the penalty calculation.  For taxpayers in the 2009 OVDP and 2011 OVDI that haven't closed their cases, the FAQ permits them to make this election and, if the election is approved, exclude the funds in the Canadian accounts from the penalty calculation.  See the FAQs, here, and the new OVDP page, here.

Yesterday, the IRS announced a new program for US residents living abroad with minor tax issues that have also failed to file the FBAR.  The new program allows US residents living abroad with less than $1500, per year, of underreported tax liabilities to file 3 years of amended tax returns and 6 years of corrected FBARs, without FBAR penalties.  The new procedure also allows for the late filing of IRS Form 8891for Canadian RRSP, and RRIF accounts for some people.  Unfortunately, the details of the new program will not be released until September 1.  The text of the release is below:

The Internal Revenue Service today announced a plan to help U.S. citizens residing overseas, including dual citizens, catch up with tax filing obligations and provide assistance for people with foreign retirement plan issues.
"Today we are announcing a series of common-sense steps to help U.S. citizens abroad get current with their tax obligations and resolve pension issues," said IRS Commissioner Doug Shulman.

Shulman announced the IRS will provide a new option to help some U.S. citizens and others residing abroad who haven’t been filing tax returns and provide them a chance to catch up with their tax filing obligations if they owe little or no back taxes. The new procedure will go into effect on Sept. 1, 2012.

The IRS is aware that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs). Some of these taxpayers have recently become aware of their filing requirements and want to comply with the law.

To help these taxpayers, the IRS offered the new procedures that will allow taxpayers who are low compliance risks to get current with their tax requirements without facing penalties or additional enforcement action. These people generally will have simple tax returns and owe $1,500 or less in tax for any of the covered years.

The IRS also announced that the new procedures will allow resolution of certain issues related to certain foreign retirement plans (such as Canadian Registered Retirement Savings Plans). In some circumstances, tax treaties allow for income deferral under U.S. tax law, but only if an election is made on a timely basis.  The streamlined procedures will be made available to resolve low compliance risk situations even though this election was not made on a timely basis.

Taxpayers using the new procedures announced today will be required to file delinquent tax returns along with appropriate related information returns for the past three years, and to file delinquent FBARs for the past six years. Submissions from taxpayers that present higher compliance risk will be subject to a more thorough review and potentially subject to an audit, which could cover more than three tax years.

The IRS also announced its offshore voluntary disclosure programs have exceeded the $5 billion mark, released new details regarding the voluntary disclosure program announced in January and closed a loophole used by some U.S. citizens. See IR-2012-64 for more.
Update September 5: The IRS has posted the new details for the new program.  You can find the link for the program, here.  The questionnaire for the program is, here.  There seem to be some potential issues involved with entering this program and I will make a post about it in the next couple of days.
 
As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes on the web.  Please do not rely on this article without consulting your tax professional.  If you are unsure about whether you have a requirement to file this form contact a tax professional.