Newspapers around the world have recently run articles highlighting the growing concern about the impact of new income tax regulations on U.S. citizens living abroad.
In addition to filing the 1040 income tax return, every U.S. citizen also has the obligation to file the Foreign Bank Account and Financial Records (FBAR) form with the U.S. Treasury Department.
Many Americans have just recently become aware of this. It has a non-willful penalty of up to 10,000 dollars for not filing. The FBAR must be filed every year if one has assets or deposits in foreign accounts (checking, savings, stocks, pension, etc.) that in the aggregate are over 10,000 dollars.
The Internal Revenue Service (IRS) advises that those who have filed their 1040 forms but not their FBARs, to file the delinquent FBAR reports (back to 2003) with Department of the Treasury, Post Office Box 32621, Detroit, MI 48232-0621, and attach a statement explaining why the reports are filed late. The IRS has stated that no penalty will be imposed for the failure to file the delinquent FBARs if there are no underreported tax liabilities.U.S. citizens who have not previously been filing at 1040 income tax return may want to take advantage of the IRS voluntary disclosure program that was announced in February of this year. It is designed to bring taxpayers into the U.S. tax system and provide them with a mechanism for resolving their U.S. tax issues.
The new IRS initiative applies to calendar years 2003 though 2010 and is available now by extension request (the former extended deadline was September 9). The voluntary disclosure program is designed to eliminate the risk of criminal prosecution and provides for lesser civil penalties that would apply if the non-compliance came to the attention of the IRS’ attention through other means.
Finally, starting in 2014, foreign financial institutions (FFI) will be required by the United States government under the Foreign Account Tax Compliance Act (FACTA) to report information regarding the accounts of U.S. citizens to the IRS. This law requires your local bank, stock brokers, hedge funds, pension funds, insurance companies, trusts, etc. to report directly to the IRS all their clients who are United States citizens. The IRS is unclear about the enforcement of this law, but says that the penalties for those institutions not in compliance are steep.
FACTA also requires that United States citizens who have foreign financial assets in excess of 50,000 dollars (US) to report those assets on a new draft version of Form 8938 to be filed with the 1040 tax return starting with the fiscal year 2011.
For more information about these tax laws and what other Americans are saying about them, Google American Citizens Abroad or go to www.americancitizensabroad.com.
The Guadalajara Reporter suggests that those needing more specific information about these and other tax matters contact their tax professionals.