Penalty relief for delinquent FBARs and forms 5471 ends August 31.

• Author: Chambers, Valrie
• Position: Foreign bank accounts reports

Eligible taxpayers may avoid penalties on certain delinquent foreign bank and financial account reports and tax information returns such as Forms 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations, and 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, filed by August 31, 2011 (penalty relief). The IRS provided this penalty relief in guidance related to its latest offshore voluntary disclosure initiative. Although voluntary disclosure is discussed briefly below, the focus of this item is who qualifies for penalty relief and procedures for obtaining this relief.

Foreign Bank Account Reporting

A U.S. person with a financial interest in, or signature authority over, certain foreign financial accounts must report those accounts to the IRS on a Form TD F 90.22-1, Report of Foreign Bank and Financial Accounts, known as an FBAR. The FBAR must be filed with the IRS Enterprise Computing Center in Detroit (not the service center where the income tax return is filed) by June 30 of the year following the calendar year in which the aggregate value of such accounts exceeds $10,000 (31 U.S.C. [section] 5314; 31 C.F.R. [section] [section] 1010.306(c) and 1010.350). Those who fail to timely file required FBARs or pay tax associated with foreign accounts face significant penalties and possible criminal sanctions (31 U.S.C. [section] [section] 5321 and 5322).

Offshore Voluntary Disclosure Initiative

On February 8, 2011, the IRS announced its second offshore voluntary disclosure initiative (2011 OVDI). To participate in the 2011 OVDI, the taxpayer must file the required paperwork and pay the required tax, penalty, and interest by August 31, 2011. Although the terms of the 2011 OVDI are not as favorable as the IRS's first offshore disclosure initiative in 2009, it still provides an opportunity for taxpayers to reduce penalties and avoid potential criminal prosecution. Guidance for how to participate in the 2011 OVDI is provided in FAQs published on the IRS website (http://tinyurl.com/OVDIguidance) and in a February 8, 2011, IRS News Release (IR-2011-14), For more information on the IRS's 2011 voluntary disclosure initiative, see Gervie, "Offshore Voluntary Disclosure Initiative," 42 The Tax Adviser 271 (April 2011).

Penalty Relief

According to the FAQs on the IRS website, the 2011 OVDI is for those who did not report or pay tax due with respect to undisclosed foreign financial...