July 20, 2009
FOREIGN BANK AND FINANCIAL ACCOUNTS
The Internal Revenue Service has increased its scrutiny of offshore accounts and foreign income. This is part of an effort by the U.S. government to recover tax dollars lost to offshore tax evasion and to increase the required reporting of offshore accounts. Currently, the government has a high profile case trying to force Swiss Bank UBS to release the names of thousands of American account holders with Swiss accounts in an attempt to nab tax evaders.
Accordingly, we want to be sure you are aware of your obligations with respect to non-U.S. bank and financial accounts. First, any income earned on investment accounts whether in the U.S. or outside the U.S. is required to be reported on your U.S. income tax returns. Second, if you have ownership or signature authority of a foreign bank account, or foreign financial account, you may be subject to filing requirements with the Treasury Department.
Treasury Department Form 90-22.1 details information concerning foreign bank account ownership and/or signature authority for financial accounts in a foreign country with an aggregate value exceeding $10,000 any time during the calendar year. Form 90-22.1 is filed separately from your tax returns and the 2008 form was originally due by June 30, 2009. The IRS recently announced that the filing requirements apply to investors in offshore hedge and mutual funds. That announcement caused a backlash and the IRS has delayed the filing deadline for the 2008 form to September 23 of this year.
There are very significant penalties (both civil and criminal) for failing to report offshore income and failing to file the reporting forms. These penalties can amount to tens of thousands of dollars on even a small account, and clearly the federal government intends to be more aggressive about pursuing penalties in this area.
The IRS has announced an amnesty program that applies to prior tax years. There are two categories of amnesty filers.
- If you were required to file Form 90-22.1 and have not filed, but you did include all foreign account investment income in your U.S. tax return(s), then there may be no penalty for filing the prior years Form(s) 90-22.1. However, in order to avoid any penalty in this case, you must file all delinquent Forms 90-22.1 by September 23, 2009.
- If you were required to File Form 90-22.1, did not file it, and did not include your foreign investment income in your U.S. tax return(s), then there is a special amnesty procedure with penalties. Again, the delinquent forms must be filed by September 23, 2009.
The IRS has warned that those who don’t take part in the amnesty filings by the September date will face far greater penalties and possibly criminal charges.
If you have a financial interest or signature authority in any foreign account it is your responsibility to provide us with the necessary information. It is also your responsibility to ensure that all income is reported on your tax return and all required foreign accounts are reported to the Treasury Department.
If you have any questions regarding these foreign financial account filing requirements, please contact us immediately.
Sobul, Primes & Schenkel