FBAR/OVDI LANCE WALLACH: FBAR Offshore Bank Accounts

FBAR/OVDI LANCE WALLACH: FBAR Offshore Bank Accounts and Foreign Income Att...: FBAR Offshore Bank Accounts and Foreign Income Attacked by IRSn August 31st 2012, the IRS announced a new streamlined filing programto allow qualifying U.S. citizens living abroad to catch up on outstanding U.S. tax returns and related information returns without penalties being imposed. Under this new program, which came into effect on September 1, 2012, individuals who qualify must: 

1. File tax returns for the 2009, 2010, and 2011 and pay any balances owing plus arrears interest. Each return must show no more than $1,500 of taxes owing.
2. File Foreign Bank Account Reporting (“FBAR”) forms for the six previous years (a separate disclosure form to be filed if the balance of all the non-U.S. bank and investments accounts is more than $10,000 at any time during the year).
3. Complete an IRS questionnaire that will be used to assess your “compliance risk”.

In order to qualify for the streamlined filing program, affected U.S. citizens (including dual-citizens) must have been living abroad since January 1, 2009, have not filed U.S. tax returns for 2009, 2010, and 2011 and are considered low-risk based on the completed questionnaire in #3 above. The IRS will look at the following non-exhaustive list of factors to determine if an individual is considered low- or high-risk:
· If any of the filed tax returns claims a refund.
· If there is any significant economic activity in the U.S and/or has U.S.-based income.
· If the taxpayer reported all their income to the tax authorities of their country of residence.
· If the U.S. citizen is under audit or investigation by the IRS.
· If FBAR filing penalties have been previously assessed or if a warning letter was issued.
· If the U.S. citizen has bank accounts or investments outside his/her home country. 
· If there are indications of sophisticated tax planning or avoidance.

  The compliance risk is an estimate by the IRS of an individual’s risk that there may be additional taxes owing and/or disclosures required that may not have been captured based on the required filings above in #1 and #2.   Individuals identified as high-risk will not be eligible for the streamlined filing procedures. In this situation, the IRS does have the ability to impose penalties and even pursue criminal prosecution if the high-risk individual’s package is not accepted. For U.S. citizens, it is about time the IRS put in place a well-publicized and documented tax amnesty program, under which U.S. citizens are not treated like Al Capone. The program should be effective for the vast majority of Americans living abroad, although, the arbitrary nature of the risk assessment will leave some U.S. citizens wanting. The cost of preparing the required U.S. tax returns and FBAR forms will be expensive, but the potential of avoiding thousands of dollars of penalties still makes