The June 30th deadline for reporting to the IRS any interest held in a financial account in a foreign country during 2010 has just passed. The obligation to annually report any interest held in a foreign account is not widely known. The failure to make the required filing can result in significant financial penalties and even criminal liability.
The IRS announced earlier this year a Voluntary Offshore Disclosure Initiative, permitting “qualified” taxpayers to file amended income tax returns to report taxable income on foreign accounts and to file the delinquent annual returns, commonly referenced as the “FBAR,” without risk of criminal prosecution. I have seen increased interest in this Initiative in my practice, and have received several referrals from accountants with clients wishing to learn about the Initiative.
Payment of any tax and interest on tax owed, as well as a penalty of up to 25% of the highest value of the financial account between 2003 and 2010, is the price of participation in the Initiative. Taxpayers must receive advance clearance from the IRS to participate in the Initiative. The Voluntary Disclosure Initiative expires August 31, 2011.