Taxpayer Confusion on Due Dates - Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts ("FBAR")

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

My comments and rant:

This I.R.S. assumes taxpayers and tax advisors have a duty to search for complex and revised FAQs on their website, digest the information, advise our clients and take action within a week before a filing deadline…all under the threat of large penalties.

Believe it or not, clients often misinterpret the rules – easy to do -- and now assume they get a no risk extension of time to file the FBAR form. Who can blame the taxpayer when they are faced with a complex form, instructions, I.R.S. guidance as 28 FAQs from the past, and additional FAQs that are part of a separate procedure for tax evaders with unreported offshore income! All related to a Form that is just information “disclosure.”

I am signed up for 5 different email alerts from the I.R.S. I received nothing on this issue until I saw it in the Wall Street Journal and went searching their website for FAQ #43, below.

The I.R.S. forgets that the rest of us have real lives to lead and can’t search the same issue over and over again just to make sure nothing has changed.

Although FAQ #43 is clear, many out in the public just hear a sound bite that “the FBAR can be extended to 9/23/09.” This confusion will lead taxpayers who would have filed on June 30^th, to delay assuming they have an easy, risk-free “extension” to September 23, 2009. I know this will happen, because our clients are already challenging us about the due date based on “something they read.”

Sure, they should actually read the rule, if they can find it, but that’s not how things work in the real world.

Two additional simple questions to the I.R.S.:

Why isn’t Form TD F 90-22.1 simply due with the taxpayers tax return?...rather on a separate date and filed at a separate address? I suppose the separation makes it easier somehow for the Department of Treasury yet more difficult for millions of taxpayers.
Why, oh why can’t this form be filed electronically? The I.R.S. is pushing electronic filing (at significant record keeping and computer fee cost to tax preparers) for almost everything else, yet this form must be mailed to a P.O. Box in Detroit.

UPDATE: 6/30/09 - follow-up to original blog below.

PLEASE DO NOT ASSUME THAT, BELOW, AN EXTENSION OF THE DUE DATE IS ALLOWED FOR EVERYONE….as some of our clients have thought!

I recommend you try to file on time (needs to be received) by June 30, 2009 if at all possible.

1) If you did not report and pay your tax on the income from the Foreign Bank Account, if required, you don’t qualify for the FBAR EXTENSION AFTER JUNE 30, 2009 to SEPTEMBER 23, 2009, at all.

If your income tax return for 2008 is on valid extension, that counts as timely reporting and paying your tax for 2008, even though your return is not yet filed, as long as you ultimately file – hopefully by the income tax return extension due date – and report the income, and pay all the tax in a timely manner.

2) If you did report and pay tax on the income from the Foreign Bank Account, if required, you have to attach a statement to the FBAR Form providing some explanation why the form is late and send a copy to the IRS office in Philadelphia, PA.

If you knew about the FBAR requirement prior to a recent June 12^th rule change, but just couldn’t get the information together, that is NOT an excuse for which the extension is allowed. File absolutely as soon as possible to put yourself in a better position to negotiate any penalties that may be imposed.

3) If you truly “only recently learned of their FBAR filing obligation and have insufficient time to gather the necessary information to complete the FBAR” and reported all your income as required and paid all your tax, the FBAR extension will apply with no penalties if you file by September 23^rd as instructed in #9, below. But I still urge you to file as soon as possible and not stretch it out to September 23rd.

4) If you filed a FBAR in 2008, it is illogical to say you didn’t know to file in 2009 by the June 30^th due date for the same accounts. We assume the IRS will check their computer records to see if you knew to file in the prior year.

Possible Penalty Trap!!

5) If you did not file FBARs for prior years and had a responsibility to file under old or new interpretations, we recommend you immediately follow #9, below, to file for the last 6 unfiled years. Otherwise, by filing now for 2008, it is clear you NOW know you need to file, and after September 23, 2009, you will have “willfully” (i.e., intentionally) not filed the prior year FBARs within the amnesty time-window provided to September 23rd, exposing you to the $10,000 Non-willful or $100,000 Willful penalties for non-filing!!!… and may need to someday talk your way out of those penalties, with a good attorney, if that is even possible.

If you also did not report the income from those accounts and were required to, be very careful what you file and call a tax attorney to discuss the IRS Voluntary Disclosure program right away so that you can make all required filings absolutely as soon as possible in a way that minimizes your exposure to penalties. SEE: http://www.groco.com/readingroom/tax_unreported_offshore_income.aspx for important information on the Voluntary Disclosure program and please be advised, this is NOT a “do-it-yourself” project. Get some professional assistance to protect yourself.

UPDATE: 8/7/09:

More FBAR Confusion On Offshore Bank Accounts - IRS Notice 2009-62 Issued 8/7/09

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. http://www.irs.gov/pub/irs-drop/n-09-62.pdf

THE EXTENSION UNTIL JUNE 30, 2010 in Notice 2009-62 IS 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:

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.

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).

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.

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.aspx Regarding 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

Original Blog:

Foreign Bank Account Reporting is Due June 30, 2009

The I.R.S. has warned they will take this filing deadline more seriously than in the past and impose penalties on late or non-filers. PLEASE TAKE THIS SERIOUSLY!

Form TD F 90-22.1 (Report of foreign Bank and Financial Accounts, commonly known as an “FBAR”).

Who Must File this Report. Each United States person who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, must report that relationship each calendar year by filing this report with the Department of the Treasury on or before June 30, of the succeeding year.

FBAR Filings Must Be Received by June 30.

Unlike the rule for tax forms, FBAR forms are deemed filed when received by the IRS, not when postmarked. (As a result, use of certified mail with return receipt requested is recommended.) No extension of time to file is granted.

1) Penalties for failure to comply with the Bank Security Act requirement that United States persons report their financial interest in, or authority over, financial accounts located in a foreign country.

U.S. citizens, residents, and certain other persons, must annually report their financial interest in, or signature authority (or other authority that is comparable to signature authority) over, a financial account (such as a bank or investment account) that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign accounts exceeded $10,000 at any time during the year. This reporting requirement is met by filing Form TD F 90-22.1 (Report of foreign Bank and Financial Accounts, commonly known as an “FBAR”). FBARs are filed with a Department of the Treasury facility located in Detroit and are not to be filed with tax returns; the filing date for FBARs is June 30th. The requirement to file FBARs is in the regulations under 31 U.S.C. § 5314 (which is a provision of the Bank Secrecy Act). Generally, the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account. Criminal penalties may also apply. Refer to IRM 4.26.16.4 for additional FBAR penalty considerations.

See: http://www.irs.gov/pub/irs-pdf/f90221.pdf

Street Address for FBAR submissions by private delivery services:

IRS Detroit Computing Center
Attn: FBAR Mail Room, 4th Floor
985 Michigan Ave.
Detroit, MI 48226

The contact phone number to give to the delivery service for the IRS Detroit Computing Center is 313-234-1062.

Hedge-Funds and Private Equity Funds have suddenly become aware they are subject to the FBAR rules.

Please see: IRS Steps Up Scrutiny of Offshore Funds

Current Legal Authority From the IRS:

http://www.irs.gov/pub/irs-utl/faqs-revised_6_24_checked_v2.pdf

“43. Re: FAQ 9 A taxpayer recently learned that they have an FBAR filing obligation but they do not have sufficient time to gather the information necessary to properly file the FBAR by the June 30, 2009 due date. How should the taxpayer proceed?

Taxpayers who reported and paid tax on all their 2008 taxable income but only recently learned of their FBAR filing obligation and have insufficient time to gather the necessary information to complete the FBAR, should file the delinquent FBAR report according to the instructions and attach a statement explaining why the report is filed late. Send a copy of the delinquent FBAR, together with a copy of the 2008 tax return, by September 23, 2009, to the Philadelphia Offshore Identification Unit at the address in FAQ 9. In this situation, the IRS will not impose a penalty for the failure to file the FBAR. Additionally, if all 2008 taxable income with respect to a foreign financial account is timely reported and a United States person only recently learned they have a 2008 FBAR obligation and there is insufficient time to gather the necessary information to complete the FBAR, the United States person may follow the procedures set forth above and no penalty will be imposed. For 2008 tax returns due after September 23, 2009, the tax return does not need to accompany the 2008 FBAR.

http://www.irs.gov/pub/irs-utl/faqs-revised_6_24_checked_v2.pdf

9. I have properly reported all my taxable income but I only recently learned that I should have been filing FBARs in prior years to report my personal foreign bank account or to report the fact that I have signature authority over bank accounts owned by my employer. May I come forward under the voluntary disclosure practice to correct this?

The purpose for the voluntary disclosure practice is to provide a way for taxpayers who did not report taxable income in the past to voluntarily come forward and resolve their tax matters. Thus, If you reported and paid tax on all taxable income but did not file FBARs, do not use the voluntary disclosure process.

For taxpayers who reported and paid tax on all their taxable income for prior years but did not file FBARs, you should file the delinquent FBAR reports according to the instructions and attach a statement explaining why the reports are filed late. Send copies of the delinquent FBARs, together with copies of tax returns for all relevant years, by September 23, 2009, to the Philadelphia Offshore Identification Unit at:

Internal Revenue Service
11501 Roosevelt Blvd.
South Bldg., Room 2002
Philadelphia, PA 19154
Attn: Charlie Judge, Offshore Unit, DP S-611

The IRS will not impose a penalty for the failure to file the FBARs.

Prior FAQs for FBAR that is, in part, supersede by the above:

http://www.irs.gov/businesses/small/article/0,,id=148845,00.html

18. What happens if an account holder is required to file an FBAR and fails to do so?

Failure to file an FBAR when required to do so may potentially result in civil penalties, criminal penalties, or both. If you learn you were required to file FBARs for earlier years, you should file the delinquent FBAR reports and attach a statement explaining why the reports are filed late. No penalty will be asserted if the IRS determines that the late filings were due to reasonable cause. Keep copies, for your record, of what you send.”