HIRE Act of 2010 enacted Code Section 6038D that provided that individuals as well as certain domestic entities with interest in “specified foreign financial assets” must attach a disclosure statement to their tax returns each year if the aggregate value of all such assets is greater than $50,000. Specified financial assets include depository or custodial accounts at foreign financial institutions, and to the extent not held in an account at a financial institution, (a)
stocks or securities issued by foreign persons, (b) any other financial instrument or contract held for investment that is issued by or has a counterparty that is not a U.S. person, and (c) any interest in a foreign entity.
IRS issued Notice 2011-55 wherein it suspended teh reporting requirements until it releases the final Form 8938 – the draft Form was released in June 2011.
IRS today released the draft instructions that include the following:
The Instructions provide that individuals satisfy the reporting requirements if they have specified foreign financial assets of more than $100,000 at any time during the year or if the total value of their specified foreign financial assets on the last day of the tax year is more than $50,000 for unmarried taxpayers living in U.S., $100,000 for married taxpayers filing a joint return and living in the U.S., and $50,000 for married taxpayers filing separate returns and living in the U.S.
The Instructions also provide the reporting threshold for taxpayers living abroad, i.e., taxpayers who are bona fide residents of a foreign country or countries for an uninterrupted period that includes the entire tax year, or are present in a foreign country or countries during at least 330 full days during any period of 12 consecutive months ending in the tax year (in short meet S. 911 conditions). They meet the reporting obligation if they are not filing a joint return and the value of their specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $400,000 at any time during the tax year.
The Instructions also reminds the taxpayers that filing Form 8938 does not relieve a taxpayer of the requirement to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), if he or she is otherwise required to file Form TD F 90-22.1.
“The Justice Department is expected to file a lawsuit Thursday that seeks to force HSBC India to reveal the names of U.S. customers with secret accounts, according to a person familiar with the matter.
The department is expected to file the legal action in a San Francisco federal court, this person said.
The move opens up a new front in the U.S. crackdown on tax evasion and comes days before the April deadline for taxpayers to file individual returns.
To date, U.S. efforts against offshore tax evasion have focused heavily on Swiss bank accounts.
UBS AG admitted in February 2009 to conspiring to defraud the U.S. government of billions in taxes by helping wealthy Americans hide assets. The bank paid $780 million in a deal to avoid prosecution and eventually released the names of more than 4,000 U.S. clients.
In February 2011, the Internal Revenue Service announced a second leniency program that offers reduced penalties to tax scofflaws that voluntarily report their offshore accounts. The agency offered the first program in 2009 in the wake of the U.S. case against UBS.
The Justice Department sent signals this year that London-based HSBC Holdings PLC’s India operations were in its sights. Prosecutors indicted a New Jersey businessman In January on charges that he conspired to evade taxes by hiding offshore bank accounts in India maintained by HSBC.”
The January indictment didn’t identify the bank by name, saying only that the institution “was one of the largest international banks in the world and was headquartered in England.” A person familiar with the case said the bank was HSBC.
IRS Issues Information on 2011 Offshore Voluntary Disclosure Initiative in Eight Foreign Languages.
The IRS recently announced (IR 2011-25) that it has made available information in eight foreign languages about the 2011 Offshore Voluntary Disclosure Initiative (OVDI) for those taxpayers with undisclosed offshore accounts. The agency took this step to reach taxpayers whose primary language may not be English.
The IRS is offering people with undisclosed income from offshore accounts an opportunity to participate in a new, voluntary disclosure initiative to get current on their tax returns. The 2011 OVDI will be available only through Aug. 31, 2011.
The news release, announcing the agency’s terms for its offshore voluntary disclosure initiative was translated into Chinese ( Traditional and Simplified), Farsi, German, Hindi, Korean, Russian, Spanish and Vietnamese.
The agency has taken this step to get information about the initiative to people that need it in response to requests made by taxpayers and tax professionals. A similar effort took place in 2009, when the IRS translated material on its special provisions for undisclosed offshore accounts into several languages.
The 2011 initiative has a higher penalty rate than the previous voluntary disclosure program, which ended on Oct. 15, 2009, but offers clear benefits to encourage taxpayers to disclose foreign accounts now rather than risk IRS detection and possible criminal prosecution.
Taxpayers participating in the new initiative must file all original and amended tax returns and include payment for taxes, interest and accuracy-related penalties by the Aug. 31 deadline.
The IRS recently launched a new section on www.IRS.gov that includes the full terms and conditions on the 2011 Offshore Voluntary Disclosure Initiative, including an extensive set of questions and answers to help taxpayers and tax professionals. The web site also includes details on how people can make a voluntary disclosure.
Complete information about this initiative including all of the translations can be found by typing the term ‘voluntary disclosure’ on IRS.gov.