Fbar (foreign Bank Account Reporting): Irs Document Requests Continue

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In the wake of the UBS AG fallout and IRS Offshore Settlement Initiative

, the IRS will continue to pursue offshore tax evasion through the Information Document Requests for the FBAR (Foreign Bank Account Reporting) of U.S Taxpayers.

What is the next move for U.S. Taxpayers?

In 2009, the IRS and U.S. Department of Justice began a highly publicized investigation into Swiss bank UBS AG and U.S. account holders who did not disclose their assets to the U.S. Government. However, the investigation did not stop with UBS. To get taxpayers to come out and disclose their foreign assets in exchange for reduced fines, the IRS instituted the Offshore Settlement Initiative Voluntary Disclosure Program (the Initiative). Although the time line to participate in the Offshore Settlement Initiative has passed, the IRS has made it clear that offshore tax evasion remains a high level enforcement priority. What can U.S. taxpayers with undisclosed offshore accounts who failed to meet the October 15, 2009 Offshore Settlement Initiative deadline expect now?

The IRS will be upping the number of their Information Document Requests or IDRs specifically for offshore bank accounts. Taxpayers may receive a Form 6564, Information Document Request, to get their hands on necessary books, documents, and other material relevant to the IRS examiners investigation into the validity of a tax return. The Information Document Request is a formal and structured process for the IRS to request and obtain information from taxpayers, including information about offshore bank accounts. Although not as severe as a subpoena, an IDR carries with it consequences for non compliance and can lead to further actions including deeper inquiries and sanctions.

The IRS will focus Information Document Requests on U.S. taxpayers with offshore assets and accounts that failed to disclose these interests to the U.S. government on their Form 1040, U.S. Individual Tax Returns, and file a corresponding Form TD F 90-22.1, Foreign Bank Account Reporting (FBAR). If IRS agents discover that a taxpayer has not reported an interest in an offshore account or income accruing on such accounts during the course of an audit, the IRS may impose steep penalties including the greater of $100,000 or 50% of the offshore account balance for willful failure to file an FBAR for each account. These penalties, compounded with interest and fraud penalties, can essentially wipe out the taxpayers foreign assets. Additionally, taxpayers could be subject to criminal prosecution and jail time for tax evasion.

The issues surrounding these IDRs are considerably sensitive and should be handled with caution. Taxpayers who have received an Information Document Request by the IRS are best served by reaching out to a tax attorney who has a history of resolving disputes with the IRS in a timely manner. An attorney can direct the taxpayer how best to reply to an Information Document Request and will be able to speak with his attorney on the most advantageous course of action. Otherwise the Internal Revenue Service can seek considerable penalties and possible criminal prosecution against those U.S. Taxpayers believed to be hiding money in undisclosed offshore accounts.

by: Kevin Thorn

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