Deadlines & Fees: Final Tax Amnesty
Read on, and be forewarned come next tax season.
In case you are living overseas, or a member of the U.S. military deployed beyond the United States, then you probably already know that the date for filing your tax return is automatically extended by two months. June 15, not April 15, is when they are due.
However, if you failed to meet the June deadline for filing your tax return, then there are two possible extensions you might take. The first extension, if filed on/before the June 15 deadline, will extend the filing date to October 18. Careful note must be made that this is not an extension of time to pay your tax that you may owe, but to file it. Also key to recall is that interest, which stands at 4%/year (compounded daily) is made on any payment made after the April 15. In addition to the interest, there is a late payment fee of 0.5%/month for any payment after June 15.
The second, and final, extension can be made with the help of a tax professional requesting IRS approval for extra time. The rights to an extension to December 15 will be left up to the IRS’ sole discretion. Failing to be approved for this final extension, there is one not commonly known exception: as a member of the U.S. military deployed to Iraq, or any other combat zone, you will have 180 days, at minimum, after you depart from the combat zone to file your return and pay taxes.
As a reminder, all U.S. citizens, holders of green cards, and resident aliens are required by Federal law to notify income from all sources, foreign and domestic. This includes foreign trusts and banks (and/or security accounts.) Complete Part III of Schedule B from your income tax return document—including all country or countries where an account is located.
Should you own a foreign bank account whose total value exceeds $10,000 during the tax year then you are required to file Treasury Department Form TD F 90-22.1. This form must be filed separately from an income tax return and by, or before, the date of June 30, as well as from a different address.
As Form TD F 90 is not a tax return one, the June 30 deadline is separate from any income tax deadline or extension, and cannot be altered. The form is simple looking, but equally as simple to fill out inaccurately: you should work with a professional tax consultant on the TD F 90 if you have not filed for June 30.
Should it appear that the above information on foreign income reporting is not known to you, then it is suggested that you seek legal counsel, as you may have falsely disclosed previous foreign income on the TD F 90 and/or your income tax return/s. This could result in large tax penalties and/or criminal prosecution, up to and including jail time.
However, there is a final amnesty program from the Federal level, and certain state levels, that might be open to you. The Federal level amnesty has a due date of August 31, with no possible extensions. In most cases, amnesty is restricted to a few individuals and the rules surrounding it are a maze of clauses.
Another option is that the IRS has a voluntary disclosure initiative meant to pull offshore money back into the United States tax system by assisting people with undisclosed income from hidden foreign sources to become current with their taxes. This initiative is available through August 31. IRS Commissioner Doug Shulman had this to say about the recent initiative:
As we continue to amass more information and pursue
more people internationally, the risk to individuals hiding
assets offshore is increasing. This new effort gives those hiding
money in foreign accounts a tough, fair way to resolve their
tax problems once and for all. And it gives people a chance to
come in before we find them.
This decision to create a second disclosure initiative furthers continuing interest from taxpayers with foreign accounts. The first of these voluntary disclosure programs occurred in 2009, and closed on October 15 with over 15,000 disclosures. Following that year, another 3,000+ taxpayers came forward to the IRS with foreign accounts.
The recent 2011 initiative, the “Offshore Voluntary Disclosure Initiative” (or, OVDI) includes changes from the 2009 one. Overall, the penalty structure has been raised so that people who failed to come forward in 2009 will face harsher penalties. This 2011 OVDI forces individuals to pay a tax penalty of 25% of the total amount in the foreign accounts in the year with the highest total account balance during 2003-2010.
Select taxpayers will be able to follow the 2011 OVDI with only 5% or 12.5% in penalties. These taxpayers need to pay any back-taxes and/or interest for a time period of 1-8 years, in addition to paying accuracy/delinquency penalties. This process can be financially damaging.
Those taxpayers joining in the new initiative need to file any original and amended tax returns, and include all payments for taxes, interest, and penalties by the August 31 deadline. It will come as no surprise to say that there is a massive load of work ahead for the taxpayer before they hand their information over to a competent tax professional to figure out the options that are right for you before applying to amnesty.
When I use the phrase “competent tax professional,” I do not mean that every tax consultant is qualified to do so. When submitting your application for amnesty to the IRS, they will review it for any penalty, tax, and interest assessment and should they find issues you may find yourself facing the Federal Tax Court. A normal tax professional may be licensed to represent his clients to the IRS, but that does not make him skilled at law. Not many tax professionals hold a license to do so, and those that do hold one will not likely have had the actual experience of being in the Federal Tax Court. Before you hire any tax professional, be certain that they A) have the proper licenses B) have experience with the Federal Tax Court and/or the Criminal Investigation Division of the U.S Treasury. Either that, or be prepared to face the consequences if you do not hire the professional with the right experience for you.
Should you turn out to be one of the thousands of taxpayers interested in discovering if IRS amnesty can apply to you, contact myself—Michael Ioane—as soon as possible. Your time is limited at best: the August 31 amnesty includes your declaration under penalty of perjury. The declaration is thorough to a fault in terms of proclaiming your knowledge on the propriety of your taxes correctness.
This declaration is not sent to the IRS, nor to the U.S. Treasury, but to the Criminal Investigation Division of the IRS. It is signed by you, so be absolutely certain that you agree with its contents. Your disclosure will include, and perhaps go beyond, the following components:
- Full Name
- Social Security Number (SSN)
- Date of Birth (DOB)
- Current Address
- Passport Number w/Country of Issue
- Current Employer
- Comprehensive Explanation of Failure to File the FBAR, Source of Funds.
- Disclosure of: if you, or any people related to you, are currently being audited for criminal investigation by the IRS or any law enforcement authority.
- Whether the IRS has notified you if it intends to commence an investigation.
- If you are under criminal investigation by a law enforcement authority, explain in detail.
- Has the IRS gathered information regarding your tax liability, if so explain.
- What is the annual range of the highest total value of your foreign assets.
- List all financial institutions and their countries for assets where you have control or count as a beneficial owner. In the case of accounts, also list dates the accounts were opened/closed (if closed.) Give a contact for each asset/account.
- Explain why the foreign accounts/assets exist. Example: Holocaust Compensation, account created before World War II, etc.; if tax non-compliance, explain.
- Name every person/institution associated with the account, their structures (that is, if they are a person, trust, etc.) and how they are related to the account (owner, attorney, etc.)
- Describe every communication you had with the institution/s, be they face-to-face or otherwise, in regards to the assets/accounts. Explain all face-to-face meetings, and any other communications you had regarding the accounts or assets with the financial institution/s. Names, dates, and locations are necessary components of this entry.
- Confirm that you are open to cooperating with the IRS, up to and including assessing your liabilities and making arrangements to pay any dues related to the disclosure (taxes, interest, etc.)
The disclosure finishes with a clause saying that the Criminal Investigation Division (CID) will additionally reserve right to further contacting the taxpayer to clarify the submission. Yet even if you do provide this possibly harmful information above, the CID reserves right to, if they believe you are not being honest in your answers and documentation, remove all amnesty and prosecute you. Unfortunately, the CID does not care about the paying of taxes, truly, but you spending time in jail. Remember, these guys do not play by the rules, the things they do in order to secure conviction you and me would be put in jail for. The Judges protect them along with the prosecutors. We have become a society of slaves to federal employees and their unions; best to do it right because the odds are against you when coming up against this group of thugs, liars and cheats.
Do you think you can afford to skimp on an experienced tax professional for the everyday workers? Give it some thought before you make a potential mistake—of a lifetime.
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– Information provided by Acacia Business Solutions