IRS streamlines delinquent return filing procedures for
The IRS recently announced streamlined procedures for U.S. citizens with foreign accounts or who reside in foreign countries. The procedures apply to certain U.S. citizens (and dual citizens) who are nonresidents of the United States and who have failed to file U.S. income tax and information returns, such as Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).
U.S. citizens (even those living abroad) with foreign bank accounts must report them to the IRS. The guidance does not represent a change in the current law, but is mainly a confirmation that the IRS has the right to audit a taxpayer and impose penalties in cases where it believes that the facts warrant such a response. The news may signal that the IRS is backing away from the problematic "one-size-fits-all" approach to foreign taxation and FBAR compliance.
Under the new procedures, qualified nonresidents must submit delinquent tax returns for the past three years; delinquent FBARs for the past six years, and any additional information regarding compliance risk factors required by future instructions. Payment of any federal tax and interest due must accompany the submission, the IRS explained.
Review will be expedited for individuals presenting low compliance risk, and the IRS will not assert penalties or pursue follow-up actions. Submissions presenting higher compliance risk are ineligible for the procedure and will be subject to a more thorough review and possibly a full examination. More details will be released before the procedures are effective September 1, 2012.
Offshore Voluntary Disclosure Initiative (OVDI)
In January 2012, the IRS reopened the OVDI (which had closed in 2011) for taxpayers with foreign accounts who have not reported them to the IRS. The IRS announced that a taxpayer who fails to notify the U.S. Department of Justice of an appeal to a foreign court is ineligible for the OVDI.
Many citizens are tripped up by the requirements to report foreign accounts. If you would like help with these requirements, please contact our office.