U.S. tax laws require all individuals who are U.S. residents or citizens to pay U.S. taxes on their worldwide income. That is, a U.S. resident or citizen has to report his foreign salaries, interest income, rental income, etc. and pay taxes on them, the same way he would report and pay taxes on his U.S. income. Domestic corporations are likewise taxed on their worldwide income.
U.S. taxpayers who have financial interest in or signature authority over offshore bank accounts, and the aggregate value of these accounts exceeds $10,000 at any time during the calendar year, must annually disclose their assets and accounts by filing a Department of Treasury form TD F 90-22.1, Report of Foreign Bank and Financial Accounts ("FBAR").
FBAR is due by 30th day of June the year after the taxpayer reaches the $10,000 threshold. Failure to file an FBAR when due may result in civil and/or criminal penalties. There is a 6 year statute of limitation for the IRS to bring a civil claim for delinquent on their FBAR filings. Failure to file FBAR, and the filing a false or fraudulent reports, can result in monetary penalties of up to $500,000 and up to 5 years of imprisonment.
The Department of Treasury has implemented a Voluntary Disclosure Program ("VDP"), which provides a limited time safe harbor for taxpayers with offshore assets to avoid large penalties against them. In order to take advantage of VDP, such taxpayers must disclose unreported foreign income and foreign accounts by no later than September 23, 2009.
VDP is available to individual taxpayers, corporations, partnerships, and trusts; however, the taxpayers need to make their disclosure before the IRS initiates any civil or criminal investigation against them. As well, the taxpayers must file FBAR and amended tax returns for up to 6 years prior and pay the applicable taxes and penalties. If the taxpayer properly complies, the taxpayer will be immune from IRS bringing criminal tax evasion charges against the taxpayer or pursuing imprisonment.
Information for this blog were gathered from various sources including John C. Friskey's article and from the IRS web site. The materials presented in this blog and our other blogs are informational, and should not be relied upon as legal advice.
Robin Mashal is a partner at the law firm of Hong & Mashal, LLP, and can be reached at (310) 286-2000. His practice focuses on business law, real estate law and civil litigation. Hong & Mashal LLP is a California business law firm.