The Internal Revenue Service (IRS) is offering a reduction on Foreign Bank Account Report (FBAR) and other penalties for offshore bank account holders who make a voluntary disclosure by September 23, 2009.
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Who Needs to File a Foreign Bank Account Report with the IRS?
Any U.S. Citizen or resident who has signatory authority over or a financial interest in a financial account located in another country is required to file FBAR Form TD F 90-22.1 with the IRS, provided that the balance was more than $10k at any time during the calendar year. FBAR filing is due each year by June 30th.
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What are the Penalties for Not Filing?
Civil and criminal penalties range up to the greater of $500,000 or 50% of the amount in the account at the time of the violation, and 10 years in prison.
The following link sets forth the civil tax penalties and the criminal tax penalties that may be asserted for not complying with the FBAR reporting and record keeping requirements.
http://www.taxproblemattorneyblog.com/2009/04/foreign_bank_account_report_ta_1.html
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What is a Quiet Voluntary Disclosure?
There are two types of voluntary disclosures: the quiet disclosure and the noisy disclosure. In a quiet disclosure, the taxpayer sends in new or amended tax returns, with a check, and hopes that it gets processed without ever hearing from the Criminal Investigation Division (CI). However, this type of “disclosure” will not qualify the taxpayer for any of the IRS’s tax amnesty programs.
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What is a Noisy Voluntary Disclosure?
The second approach – and the only way to qualify for tax amnesty – is a “noisy disclosure,” in which the taxpayer must contact the local IRS CI office. A meeting should be arranged with CI to discuss whether the taxpayer’s facts and circumstances meet the terms of the IRS voluntary disclosure policy.
In order to qualify as a true voluntary disclosure, the communication to the IRS must be truthful, timely and complete. In addition, the taxpayer must show a willingness to cooperate with the IRS, and must in fact cooperate with the IRS in determining his or her correct tax liability. The taxpayer must also pay the liability in full, or make good faith arrangements with the IRS to make full payment of tax, interest, and penalties.
More information about voluntary disclosure in general is available at http://www.bragertaxlaw.com/lawyer-attorney-1441087.html
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How Can Voluntary Disclosure Help Alleviate Possible Penalties?
With the IRS tax amnesty program, a voluntary disclosure has two major benefits:
1 – Although making a voluntary disclosure does not guarantee that a criminal prosecution will not occur, it may result in a criminal prosecution not being recommended.
2 – A taxpayer making a voluntary disclosure by September 23 may receive a maximum penalty of 20% (rather than 50%) of the highest aggregate balance in the accounts during the six preceding years.
Careful consideration must be given to whether or not a voluntary disclosure should be made taking into account all of the facts and circumstances.
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