Offshore Reporting Deadline Looms For US Taxpayers

by Mike Godfrey, Tax-News.com, Washington

02 October 2009

The US Internal Revenue Service has warned taxpayers that some key deadlines occur on October 15, including the deadline for special voluntary disclosures by taxpayers with assets in previously undisclosed offshore financial accounts.

Under the special provisions issued in March, taxpayers with these accounts originally had until September 23, 2009, to come forward. Those taxpayers who do not voluntarily disclose their accounts by October 15 face harsh civil penalties, where applicable, and possible criminal prosecution.

The September 23, 2009, deadline for certain FBAR (Report of Foreign Bank and Financial Accounts) filers and certain offshore-related information returns who have no unreported income is also extended to October 15, 2009.

Ordinarily the IRS may impose penalties of up to 50% of the balance of each offshore account for each year the account remains undisclosed. The taxpayer will also be liable for additional tax on income earned by the foreign account plus interest on the additional tax. They could also be liable to a fraud penalty equal to 75% and risk criminal sanctions.

By making a disclosure under the settlement initiative, the taxpayer will be liable for a reduced single penalty equal to 20% of the amount of the offshore account for the one day in the past six years in which the account had the highest aggregate value. This penalty could be reduced to just 5% under certain circumstances.

The IRS also communicated that October 15 is the deadline for those who requested a six-month extension to file their 2008 tax returns. In most cases, this date is the last day taxpayers may timely file their 2008 federal tax returns and the IRS expects to receive as many as 10 million tax returns from taxpayers who used Form 4868 to request a six-month extension to file their returns last April. However, some taxpayers can wait until after October 15 to file, including those those serving in Iraq, Afghanistan or other combat zone localities and people affected by recent natural disasters.

October 15 is also the last day that taxpayers can take advantage of the agency's Free File program, which provides free federal income tax preparation and electronic filing for eligible taxpayers through a partnership between the IRS and the Free File Alliance LLC, a group of private sector tax software companies. Traditional Free File is available for taxpayers with adjusted gross incomes of USD56,000 or less, although Free File fillable forms can be used by people who earned more.

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