Over the past several years, the IRS has increased its efforts to police offshore accounts. In an effort to bring taxpayers into compliance, Congress initiated the 2011 Offshore Voluntary Disclosure Program (2011 OVDI). The deadline for participation in the program is August 31, 2011.
The 2011 OVDI offers taxpayers amnesty from criminal prosecution and offers reduced penalties for nondisclosure in prior tax years (2003 - 2010) of taxable income from offshore or foreign asset holdings. While the requirement to disclose foreign asset holdings and the obligation to report worldwide income is not new, the IRS has recently started to aggressively pursue taxpayers who are failing to disclose foreign asset holdings and, based on all reports, will continue to do so in coming years. The 2011 OVDI program may benefit taxpayers who have not been disclosing foreign asset holdings or income associated therewith.
While there are certain limited exceptions to the requirement to disclose foreign asset holdings, the requirement to file Form TD F 90-22.1 (FBAR) applies to anyone who is a United States Person with a financial interest in foreign accounts valued at more than $10,000 at any time during the applicable taxable year. A "United States Person" includes U.S. citizens, U.S. residents and entities organized in the United States, including corporations, partnership and limited liability companies. Foreign accounts and foreign asset holdings include, but are not limited to, checking and savings accounts, insurance policies with cash surrender value, brokerage and securities accounts, and futures or option accounts.
Participants in the 2011 OVDI must pay taxes (plus interest) on previously unreported offshore income as well as an offshore penalty in lieu of all other penalties that could be assessed under federal tax law. Under the terms of the 2011 OVDI, the process for participating requires providing to the IRS previously filed returns, amended returns and original and amended (if required) FBAR reports for the applicable tax years.
For taxpayers having signature authority over, but no financial interest in, a foreign asset holding or offshore account, slightly different rules apply, and the deadline for filing FBARs for tax years 2003 through 2009 is November 1, 2011.
If a taxpayer properly reported all taxable income from offshore or foreign accounts but did not file the required Forms TD F 90-22.1, such taxpayers are advised to file delinquent FBAR reports with a statement attached explaining the reason the FBAR reports are filed late, rather than participate in the 2011 OVDI.