For U.S. citizens or residents of the U.S., any income earned on foreign financial accounts, whether located in the U.S. or located outside of the U.S., is required to be reported on your U.S. income tax returns. Foreign financial accounts include bank accounts, securities accounts, savings accounts, time deposits located in a foreign country, debit cards and prepaid cards charged to or backed by foreign financial accounts.
Additionally, Treasury Department Form TD F90-22.1 must be filed by June 30 each year following any calendar year in which you have foreign financial account ownership, or signature or other authority over, a financial account(s) located in a foreign country with an aggregate value exceeding $10,000 at any time during the calendar year. Form TD F 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 if you have reported all of your foreign income on your tax returns and paid the tax but failed to file the TD F 90-22.1 for any past year, penalties for the delinquent TD F 90-22.1 can be avoided if it is filed by September 23, 2009 with an explanation of why it was late. Should you have failed to file the form TD F 90-22.1 for any past year including 2008, please contact me immediately so that we can discuss issues related to this form.
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.
The IRS has announced a partial amnesty program that applies to prior tax years. There are two categories of amnesty filers.
- If you were required to file Form TD F 90-22.1 for any year and have not filed it, but you did include all foreign account income in your U.S. tax return(s), then there may be no penalty for filing the prior year’s Form(s) TD F 90-22.1. However, in order to avoid any penalties you must file all delinquent Forms TD F 90-22.1 by September 23, 2009. See the earlier discussion on this issue.
- If you did not include all of your foreign income in your U.S. tax return(s) from all sources, including income related to a foreign account, there is a special IRS amnesty procedure available to you regardless of whether or not you filed Form TD F 90-22.1 for that year(s). Entering this program could result in criminal penalties not being imposed for not fully reporting your offshore income, though the decision as to whether or not to enter into the VDP can be complex. You must decide whether to enter into the VDP and actually enter it by September 23, 2009. If this description fits your situation, you should immediately read the letter we have sent you addressing the VDP for unreported foreign income, which states the need to immediately consult with a criminal tax attorney concerning the VDP.
The IRS has warned that those who do not take part in the VDP amnesty filing by the September 23, 2009 date will potentially face far greater civil penalties and possible criminal charges than if they entered the VDP.
If you have a financial interest or signature authority in any foreign financial account, it is your responsibility to file the TD F 90-22.1. We will assist you in completing that form when you have provided 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 at your earliest convenience.