If you are working and living overseas or you are a member of the U.S. military on duty outside the United States, you may already know that the deadline for filing your 2010 tax return is usually an automatic extension of two months to June 15, 2011, rather than April 15, 2011.
If you did not meet the June 15, 2011 deadline for filing your 2010 tax return, then you should have availed yourself to one of two extensions that were available to you. The first extension you may have filed on or before June 15, 2011 will extend the filing date to October 17, 2011. It is important to note that this is an extension of time to file your tax return, not an extension of time to pay the tax you may owe on the return. Also, interest, currently at the rate of 4 percent per year-compounded daily, applies to any payment made after April 18, 2011. There is also the late payment penalty, .5 percent per month, which applies to payments made after June 15, 2011.
If you still cannot get your tax return filed by the October 17, 2011 due date, then there is one final extension, but you should seek the help of a tax professional to get IRS approval on this second extension since it is discretionary by the IRS. Even if this final extension to December 15, 2011 should fail, do not forget there is a little known exception if you are a member of the U.S. military serving in Iraq, Afghanistan and other combat zone localities; you will generally have until at least 180 days after you leave the combat zone to file your return and pay any taxes due.
Remember, U.S. citizens, green card holders and resident aliens are statutorily required to report income from all sources, both foreign and domestic, including income from foreign trusts, foreign banks and/or securities accounts. You will need to complete Part III of Schedule B of your individual income tax return documentation, which includes reporting the country, or countries in which the accounts are located.
If you have foreign bank accounts whose aggregate value exceeded $10-thousand at any time during the year 2010 then you must file Treasury Department Form TD F 90-22.1. This form was due June 30, 2011 and is to be filed separately from your individual income tax return and at a different address with the U.S. Treasury Department. Since this Form TD F 90 is not a tax return form, the June 30, 2011 deadline stands apart from your income tax deadline or extension. This means that the TD F 90 form has only one deadline without any possibility of extension, June 30, 2011. TD F 90 is a very innocent looking form, but also very easy to fill out incorrectly. You should definitely consult with a tax professional on this form if you have not filed for the deadline of June 30, 2011.
If any of this above information on foreign bank reporting is new to you, then you really need to retain legal counsel because you may have innocently or intentionally failed in the past to disclose foreign bank accounts or report foreign income on the TD F 90 or your individual income tax return(s). The penalties are huge and the exposure to massive tax penalties as well as criminal prosecution is at an extremely high risk. There is a final amnesty program that may be available to you on the Federal level as well as some state levels; with California being one of these states, with the federal due date of August 31, 2011 and no extensions will be granted. Generally, this amnesty will be restricted to select individuals and the rules are very serious and amazingly complicated.
The Internal Revenue Service announced a special voluntary disclosure initiative designed to bring offshore money back into the U.S. tax system and help people with undisclosed income from hidden offshore accounts to become current with their tax obligations. The new voluntary disclosure initiative will be available through August 31, 2011.
“As we continue to amass more information and pursue more people internationally, the risk to individuals hiding assets offshore is increasing,” said IRS Commissioner Doug Shulman. “This new effort gives those hiding money in foreign accounts a tough, fair way to resolve their tax problems once and for all. And it gives people a chance to come in before we find them.”
The IRS decision to open a second special disclosure initiative follows continuing interests from taxpayers with foreign bank and/or financial accounts. The first special voluntary disclosure program closed with 15-thousand voluntary disclosures on October 15, 2009. Since that time, more than 3-thousand taxpayers have come forward to the IRS with foreign bank accounts from around the world. The new initiative called the 2011 Offshore Voluntary Disclosure Initiative (OVDI) and includes several changes from the 2009 Offshore Voluntary Disclosure Program (OVDP). The overall penalty structure for 2011 is higher, so people who did not come in through the 2009 voluntary disclosure program will suffer higher penalties. The new Amnesty program has a new penalty framework that requires individuals to pay a penalty of 25 percent of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003 to 2010 time period. Some taxpayers will be eligible for 5 percent or 12.5 percent penalties. Successful participants must also pay back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties with are considerable and financially crippling. Taxpayers participating in the new initiative must file all original and amended tax returns and include payment for taxes, interest and accuracy-related penalties by the rapidly approaching August 31, 2011 deadline. So, there is a ton of work to be done by the individual in gathering information for the competent tax attorney to properly determine the best options and/or alternatives for you and to then try to formulate a hopefully successful amnesty application.
When I say, competent tax attorney, I am using this phrase in a very specific way. Although it is true that a licensed tax professional is allowed to assist you with the amnesty application, it is very likely that your amnesty will be reviewed by the IRS for penalty, interest and tax assessment. If you do not agree with this assessment or are denied from successfully completing the amnesty program, then you will need to protect yourself and file relief with a higher level of authority within the U.S. Treasury or Federal Tax Court. You need to understand that being licensed by the U.S. Treasury to represent clients before the IRS does not mean that you are also licensed to practice law before the Federal Tax Court. Very few C.P.A.s hold such a license while more lawyers hold this license. However, even with this license to practice before Federal Tax Court will not equate to actually having practiced before the Court. Therefore, you should ask this question before you retain tax counsel to be assured that if it all goes wrong, you will have counsel who can guide you and your case into Tax Court. Even then, you need a licensed attorney who has represented individuals successfully before the Criminal Investigation Division of the U.S. Treasury should your case be assigned for criminal prosecution.
If you find yourself among one of the many thousands of individuals seeking to now investigate whether this “final” IRS amnesty can apply successfully to you, please contact the author immediately, time is quickly running out. Please remember that the August 31, 2011 Amnesty consists of your declaration under penalty of perjury. This declaration is all encompassing and painfully thorough in your declaration of your knowledge, people you contacted, people who may have advised you and/or helped you set up these foreign bank accounts. Also, this letter declaration is not sent to the IRS or the U.S. Treasury! This declaration signed by you under the federal laws of perjury is sent to Criminal Investigation Division of the Internal Revenue Service and within your declaration will be, but not limited to, your disclosure to the Criminal Investigation Division the following:
1. Your full Name
2. Your Social Security Number
3. Your Date of Birth
4. Your Current Address
5. Passport Number and Country of Issue
6. Current Occupation
7. Complete and Comprehensive Explanation for Your Failure to File the FBAR and also Explain the Source of these Funds.
8. Disclose if you or any related entities are currently under audit or criminal investigation by the Internal Revenue Service or any other law enforcement authority.
9. Has the IRS notified you that it intends to commence an examination or investigation?
10. Are you under criminal investigation by any law enforcement authority, if so explain in detail.
11. Do you believe that the IRS has obtained information concerning your tax liability, if so explain.
12. Estimate the annual range of the highest aggregate value of your offshore accounts/assets.
13. For accounts or assets where you have control or are a beneficial owner of the account or asset, list any and all financial institutions and the country where the institution is located. For accounts, please also list the dates the accounts were opened and/or closed. Provide your point of contact at each financial institution.
14. Explain the purpose for establishing the offshore account or assets. For example: Holocaust Compensation or Restitution; inherited account; account established prior to World War II, etc.; if tax non-compliance – explain.
15. List each person or entity affiliated with the account, their formal structure (i.e., if a corporation, foundation, or trust), and the nature of their relationship to the account (i.e. owner, power of attorney, parent entity of corporate account holder, etc.).
16. Explain all face-to-face meetings, and any other communications you had regarding the accounts or assets with the financial institution(s). Also include face-to-face meetings or communications regarding the accounts or assets with independent advisors/investment managers not from the financial institution(s) where the funds are held. Provide the names, locations and dates of these meetings and/or communications.
17. Certify that you are willing to continue to cooperate with the Internal Revenue Service, including in assessing my income tax liabilities and making good faith arrangements to pay all taxes, interest, and penalties associated with this voluntary disclosure.
18. The Criminal Investigation Division will also then reserves its right to make further contacts with the taxpayer to clarify his/her submission.
19. Even if you provide all of the potentially damning information requested in the above 18 items, if the Criminal Investigation Division, subjectively, believes that you are not being open, honest and forthright in all of your answers, documents and answers, the CID will withdraw the Amnesty and commence criminal prosecution. Remember that CID is not concerned with collection of taxes, primarily; they are interested in your incarceration. Now, do you think you need an experienced tax attorney?