by Harris Bonnette Jr.
Chair, JBA Tax Committee
The IRS hates the word “amnesty.” Rarely will you ever find any IRS publication indicating that the IRS will provide amnesty for a delinquent taxpayer. Instead, the IRS uses the softer word “initiative.” Indeed, the IRS started an initiative for those taxpayers who have an interest in a foreign bank account but did not filed their so-called report of foreign bank and financial accounts (also known as “FBAR”) and did not report the income from those bank accounts on their U.S. income tax returns. Stated simply, under this initiative, if (a) a taxpayer has not reported all foreign income, (b) has not filed FBARs, (c) has not yet been contacted by the IRS about the unreported income, (d) the taxpayer timely comes forward and voluntarily discloses this to the IRS, and (e) provides amended tax returns for up to six years (2003 through 2008) reporting the foreign income and provides FBARs, then the IRS agrees it will not pursue a criminal investigation, it will limit the amount of penalties that could otherwise be assessed, and it will enter into a closing agreement with the taxpayer fixing the amount due.
This is good news for those taxpayers who have not reported a foreign bank account or reported the income from that account and paid tax on it. This initiative is important because a taxpayer who comes forward will avoid any criminal exposure and will get a break on the penalties that otherwise could be assessed by the IRS. So what is the catch?
The catch is you must come forward and properly report in the proper manner all this information on or before Oct. 15 (the original deadline was Sept. 23). Taking advantage of this initiative could provide those taxpayers who have unreported foreign bank accounts or unreported foreign income substantial peace of mind in knowing that they will not be criminally prosecuted. Yes, the tax, penalty, and interest will take a bite out of the taxpayer’s pocketbook, but I believe sleeping soundly at night is better. There are other options available and in certain cases it may not be appropriate to take advantage of this initiative. A taxpayer’s particular facts and circumstances should be carefully and thoroughly reviewed with a tax professional.