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IRS To Let Foreign Bank Account Holders To Disclose Assets Without Penalty

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IRS OFFSHORE ACCOUNTS
Internal Revenue Service Commissioner Douglas Shulman, speaks at a luncheon gathering at the National Press Club in Washington, Monday, April 5, 2010. | AP


By Lynnley Browning

June 26 (Reuters) - Many Americans living abroad will get a small reprieve from U.S. Internal Revenue Service rules on reporting foreign assets, the agency announced on Tuesday.

The IRS said it would allow some U.S. citizens, including dual citizens, who have not filed income tax returns or not disclosed their foreign bank accounts, to come forward without facing onerous penalties or the threat of prosecution.

The agency said the reprieve, to begin Sept. 1, would also apply to U.S. expatriates with foreign retirement plans, including Canadian ones.

"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," IRS Commissioner Doug Shulman said in a statement.

The optional procedure just announced is available only to Americans who owe little or no back taxes, not to those who have squirreled away substantial amounts in secret offshore accounts that they have knowingly failed to disclose to the IRS.

An IRS statement said the new guidelines were for "low compliance risk" taxpayers, generally people who have simple returns and owe $1,500 or less in tax for any covered years.

The IRS's move in this area comes amid a broad crackdown by the U.S. Justice Department and the IRS on suspected offshore tax evasion by wealthy Americans through Swiss banks.

It also follows complaints by tax lawyers that many U.S. expatriates have been unaware of the new rules on tax returns and disclosure of foreign bank accounts.

They said many of these people were not willful tax evaders, but simply uninformed about filing returns and, if needed, disclosures known as Foreign Bank and Financial Account Reports, or FBARs.

The IRS said that under the new procedure, taxpayers would have to file delinquent tax returns for the past three years and delinquent FBARs for the past six years.

The agency said "higher compliance risk" taxpayers would be subject to a more thorough review and, potentially, an audit.

The IRS tightened its policies in other ways on Tuesday, saying it might exclude from the voluntary disclosure program U.S. taxpayers with foreign accounts at foreign banks that have faced sanctions or worse from U.S. authorities.

The IRS also said taxpayers would be barred from the disclosure program if they challenged in foreign courts the disclosure of their accounts while failing to inform the U.S. Justice Department of such challenges. (Reporting by Lynnley Browning; Editing by Kevin Drawbaugh and Lisa Von Ahn)

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