More FBAR Confusion on Offshore Bank Accounts

IRS Notice 2009-62 Issued 8/7/09

By Ron Cohen, CPA, MST
Partner
Greenstein, Rogoff, Olsen & Co., LLP

The due date for reporting the existence of Offshore Bank Accounts on Treasury Department Form TD F 90-22.1 has been an issue of great confusion in the last few months.

Form TD F 90-22.1 is known as Foreign Bank Account Reporting (AKA “FBAR”)

For a complete review of this soap opera of events since June, please see: http://www.groco.com/readingroom/intl_foreign_bank_reporting.aspx

On Friday, 8/7/09, the I.R.S. issued Notice 2009-62 in an attempt to clarify the rules. You can decide if the Notice clarified or confused the issue. I just have trouble (with 29 years of experience and a Masters Degree in Taxation) keeping up with who needs to file what by when.

This morning I discussed this issue with the I.R.S. staff in Washington, D.C. who wrote Notice 2009-62. See: http://www.irs.gov/pub/irs-drop/n-09-62.pdf

THE EXTENSION UNTIL JUNE 30, 2010 in Notice 2009-62 IS ONLY FOR TAXPAYERS UNDER (i) and (ii), below. All others, who “only recently learned” of the need to file the FBARs, have only until September 23, 2009 to file for 2008 and 6 prior years to avoid penalties (if they have already paid the income tax on the foreign account income.)

OK, this is confusing. So here’s a more organized review of the rules:

1. Taxpayers who filed FBARs in prior years for the same accounts or always knew they needed to file the FBAR: The due date was June 30, 2009. No extension because it was clear and they always knew they needed to file. File as soon as possible.



2. Taxpayers who “only recently learned” they needed to file, but are not under IRS Notice 2009-62, have a due date to sort it all out and file by September 23, 2009 to avoid FBAR penalties...including any unfiled 6 prior years…unless 4) applies. Follow the filing procedure in Question #9 of the FAQs (link below).



3. Taxpayers with accounts covered by Notice 2009-62 now have until June 30, 2010 to sort everything out based on IRS further guidance which is “forthcoming” Including any unfiled 6 prior years to avoid penalties...unless 4) applies.



4. Taxpayers who did not report the income from the accounts (on Form 1040, Schedule B and/or Schedule D & E for individuals – different forms for partnerships, trusts or corporations) get NO extension and need to immediately pursue a voluntary disclosure by September 23, 2009 and suffer both tax penalties and FBAR penalties that will be 7 times worse after September 23rd. The I.R.S. will also strongly consider criminal prosecution of tax evaders who don’t disclose by September 23, 2009.
   See: http://www.groco.com/readingroom/tax_unreported_offshore_income.aspxRegarding the Voluntary Disclosure Program.

Items (i) and (ii) below are being isolated because the I.R.S. tried to change their interpretation of the rules in June (a few weeks before the due date of the form for tax year 2008) to include special situations that were understood, based on the form instructions and prior IRS verbal guidance, to NOT be accounts that required reporting. The late change to required reporting of those accounts caused a great deal of stress for affected taxpayers and clients as it was unclear who needed to file…all under the threat of a $10,000 penalty (or more if “willful” or fraud) for non-filing. Clearly, the IRS has not even worked out what they want on (i) and (ii), because “future guidance” will be forthcoming.

Well, I’m glad the I.R.S. cleared all that up. Aren’t you?

I.R.S. Notice 2009-62 issue August 7, 2009 says in Sec. B:

“B. Extended Date for Filing an FBAR

In light of the additional time needed for the Department of the Treasury to address issues pertaining to FBAR filing requirements and the need to provide administrative relief for (i) persons with signature authority over, but no financial interest in, a foreign financial account, and (ii) persons with a financial interest in, or signature authority over, a foreign commingled fund, this Notice provides that those persons have until June 30, 2010, to file a FBAR for the 2008 and earlier calendar years with respect to these foreign financial accounts. Thus, eligible persons that avail themselves of the administrative relief provided in this Notice may need to file FBARs for the 2008, 2009 and earlier calendar years on or before June 30, 2010, to the extent provided in future guidance.”

Here’s the IRS FAQ with the September 23, 2009 due date info…
http://www.irs.gov/pub/irs-utl/faqs-revised_6_24_checked_v2.pdf

I am always available for questions or comments at (510) 797 8661 x237.