U.S. taxpayers are generally required to report their worldwide income on their tax returns, even if that income is not taxable. This is different from the rules in many other countries.In addition to reporting income, the Report of Foreign Bank and Financial Accounts (FBAR) requirements state that each "U.S. person" has to file a separate report if he or she has an interest in, signature or other authority over one or more bank, securities, or other financial account in any foreign country, if the total value of the accounts exceeds $10,000 at any point in the year. This report, often referred to as an "FBAR" form, must be filed for every year the accounts exceed that $10,000 threshold. For purposes of reporting, the accounts need not be permanent and include convenience and joint accounts in foreign countries set up for work, study or immigration purposes.
For purposes of the FBAR requirements, a "U.S. person" means a citizen or resident of the United States, or a person in and doing business in the United States. It is not limited to individuals and includes partnerships and corporations. You may be a "U.S. person" if you are in the country even for a short time.
Other reporting requirements may also apply, such as forms that must be filed by taxpayers
with interests in foreign companies. It's important to keep in mind that these requirements don't just apply to international business moguls: U.S. persons involved in international family businesses or rental properties may also be subject to the reporting requirements.
Outside of the amnesty program, there are significant financial penalties for failing to comply with income and account reporting laws. There is also a danger of criminal prosecution.
Taxpayers who comply with the amnesty program may be eligible for a significant reduction in penalties. Additionally, taxpayers who comply can avoid criminal prosecution. To participate in the disclosure program, taxpayers must file all tax returns and pay taxes, interest and accuracy-related penalties for the tax years 2003 through 2010. The deadline for the initiative is Aug. 31, 2011.
Taxpayers who have been notified by the IRS that they are currently being investigated for not previously revealing foreign accounts or undisclosed foreign entities will not be eligible for the program. This includes taxpayers under civil or criminal investigation. Similarly, taxpayers who previously participated in the 2009 amnesty program are not eligible for the 2011 program.
The IRS plans to continue to enforce tax secrecy laws and has increased the resources available to find taxpayers with offshore accounts. IRS Commissioner Doug Shulman has made offshore account reporting a priority in his administration following high profile (and highly successful) investigations at the Swiss-based bank, UBS, and British-based bank, HSBC.
Shulman encourages taxpayers to come forward -- before the IRS finds them -- saying:
The decision to offer a second amnesty program follows continuing interest from taxpayers with foreign accounts. The first special voluntary disclosure program, in 2009, resulted in 15,000 voluntary disclosures. In contrast, since that time, only about 3,000 taxpayers have come forward.
"As we continue to amass more information and pursue more people internationally, the risk to individuals hiding assets offshore is increasing. 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 has dedicated a section on its website to the program with information in eight languages -- Chinese, German, Korean, Spanish, Farsi, Hindi, Russian and Vietnamese. Taxpayers can find a series of questions and answers on the site as well as details on how to make a voluntary disclosure; taxpayers are encouraged to contact the IRS or their tax professional for more information about the program.
The key to the second (and final) amnesty program is becoming compliant. The IRS is serious about offshore accounts and has said publicly that things are going to get more, not less, difficult for taxpayers who fail to take advantage of the program. Shulman warns that this is the last chance for affected taxpayers to get a break. In his statement, Shulman noted:
"As I've said all along, the goal is to get people back into the U.S. tax system. Combating international tax evasion is a top priority for the IRS. We have additional cases and banks under review. The situation will just get worse in the months ahead for those hiding assets and income offshore. This new disclosure initiative is the last, best chance for people to get back into the system."