June 13, 2006

$10,000 Penalty for a Non-Willful
Failure to Report Foreign Accounts

Taxpayers who had foreign financial accounts in excess of $10,000 at any time during 2005 must disclose the location and even the account numbers of their accounts on or before June 30, 2006. A failure to do so could cost up to $10,000.

The IRS contends that over a million U.S. taxpayers have foreign accounts which earn income that isn’t being reported on their tax return. Until the 2005 filing year, penalties were only imposed for a willful failure to file the foreign bank account report form TD F 90-22.1. But the penalty for a willful failure to file was huge and it is hard to prove willfulness. So the penalties were rarely imposed and taxpayers ignored the requirement to disclose their foreign accounts.

So the IRS asked the Congress to impose a penalty for a non-willful failure to file the form. As part of the American Jobs Creation Act of 2004, the Congress introduced a new penalty of up to $10,000 that can be imposed at the discretion of the IRS. This is the first reporting year in which the new penalty can be imposed.

But many taxpayers with offshore investments of various kinds are confused about whether a particular type of investment is a foreign account and must be reported. In addition, there are some exceptions to the reporting requirement, which are less than clear in the IRS instructions. Vernon Jacobs, a CPA who focuses on international tax work, writes a free newsletter that provides answers to many questions posed by list members. Questions about the foreign account reporting requirement have been the most frequent of any single topic during the past five years since his publication has been available. He has complied his answers to 57 different questions and has included extensive background information in a report called the “2006 Guide to Reporting Offshore Financial Accounts”. An e-book edition of the 62 page report is available for just $16.

Information about the report is available at http://www.offshorepress.com/fbar.htm

An e-book can be ordered at http://offshorepress.stores.yahoo.net/repoffinac.html

Information about the author is avaialable at http://www.vernonjacobs.com/vkjcpa.htm