There have always been U.S. taxpayers who try to avoid paying U.S. taxes by hiding income in offshore bank and brokerage accounts. The practice is at the top of the IRS's 2011 "Dirty Dozen" annual list of tax scams. The IRS is increasing its pursuit of taxpayers and promoters of these scams.
U.S. taxpayers are required to report and pay tax on their "world-wide income." In February, the IRS announced a second voluntary disclosure initiative available through August 31, 2011 designed to encourage taxpayers to report offshore money previously unreported and to help those who have not been reporting income from offshore accounts to get current.
The first offshore voluntary disclosure program, covering tax years 2003 through 2009, ended October 15, 2009. This second program covers tax years 2003 through 2010. Penalty rate has been increased from 20% to 25%.
Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, is used to report financial interest or signature authority over financial account(s) in foreign country if the aggregate value of all foreign accounts exceeds $10,000. FBAR is not a tax. The report is due June 30 with no extension available.
For the tax year beginning 2011 there is a new Form 8938, Statement of Foreign Financial Assets. This form is for reporting foreign bank accounts and the income associated with the accounts, and for reporting interests in stock or security, in foreign financial instruments and contacts and in foreign entities. This includes reporting foreign rental property.
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