Tax practitioners with clients with foreign bank accounts may want to consider sending a mailing soon to notify clients of their responsibility to file the Report of Foreign Bank and Financial Accounts (Treasury Form TD F 90-22.1) on or before June 30, 2008.
The AICPA also reminds tax practitioners to ask clients about the existence of foreign bank accounts and to disclose the information in Question 7, Part III of Form 1040, Schedule B, Interest and Ordinary Dividends.
The TD F 90-22.1 form is required to be filed by U.S. citizens and residents who have a financial interest in or signature or other authority over any financial accounts (including bank, securities, or other types of financial accounts) in a foreign country, if the aggregate value of such accounts exceeded $10,000 at any time during the calendar year. The interpretation of an interest in a foreign bank or securities account is very broad and includes, in some instances, a direct or indirect interest as well as a beneficial interest in a foreign bank or securities account. To see the TD F 90-22.1 and related IRS international tax form instructions and publications, go to www.irs.gov/businesses/small/international/article/0,,id=96796,00.html.
A civil penalty (up to $10,000) may be imposed on any person who violates this reporting requirement (without regard to willfulness) (31 USC Section 5321(a)(5)(B)). The penalty may be waived if all income from the account was properly reported on the income tax return and there was reasonable cause for the failure to report.
Congress has increased the amount of the penalty for willful behavior as well, providing for Treasury to impose on any person who willfully violates the Form TD F 90-22.1 reporting requirement a civil penalty equal to the greater of 50% of the transaction amount or the value of the account or $100,000 maximum (31 USC Section 5321(a)(5)(C)). In addition, any person who willfully violates this reporting requirement is subject to a criminal penalty—a fine of not more than $250,000 or imprisonment for up to five years (or both) (31 USC Section 5322). If the violation is part of a pattern of illegal activity, the maximum fine increases to $500,000 and the maximum length of imprisonment increases to 10 years (id.).
The AICPA Tax
Division’s International Tax Resource Panel’s Reporting
Requirements Task Force has developed two guides on foreign
income reporting and the TD F 90-22.1, available to AICPA Tax
Section members at http://tax.aicpa.org/NR/rdonlyres/
The lack of disclosure of foreign financial accounts has become a priority for Congress and the IRS. The IRS’s Offshore Voluntary Compliance Initiative allowed partial amnesty until April 15, 2003, but some interested taxpayers may still be able to work out a voluntary compliance arrangement with the IRS (see the AICPA Tax Division’s International Tax Resource Panel’s Reporting Requirements Task Force guides on the IRS offshore voluntary compliance initiative, available to Tax Section members here.