IRS Announces Reduced Penalties to Come Clean for U.S. Taxpayers Living Abroad
June 6, 2011 (PRNewswire) In a bid to encourage U.S. taxpayers living abroad to file U.S. tax returns and Report of Foreign Bank and Financial Accounts (FBARs), the IRS has significantly reduced the civil penalties associated with the 2011 Offshore Voluntary Disclosure Initiative. On June 2, 2011, the IRS announced new rules applicable to U.S. taxpayers who live outside the United States.
"This is a much needed development and a welcome relief for U.S. taxpayers living abroad who want to come into compliance with U.S. filing obligations," said Jim Mastracchio, Co-Chair of Baker Hostetler's nationwide tax controversy practice and the head of the firm's Washington, D.C. tax practice. "We have advised a number of U.S. taxpayers living outside of the U.S., and we would expect many to take advantage of the settlement program now that the civil penalties have been substantially reduced."
To qualify, taxpayers must have resided in a foreign country, complied with the tax laws of the country of residence, and had less than $10,000 per year in U.S. sourced income. Under the new rules, they can file delinquent FBARs and other U.S. tax returns, paying a 5% penalty on financial assets (such as bank accounts, savings accounts and investment accounts), and avoiding all penalties associated with non-financial assets such as business interests, real property and artwork. Under the initial settlement guidelines a penalty of 25% would have been imposed. Taxpayers must take certain steps before August 31, 2011 in order to qualify for the settlement initiative.