Foreign Bank and Financial Account Report (in short FBAR) is a form that IRS requires you to file to comply with the requirements of reporting Foreign Bank and Financial Accounts to Tax authorities in United States.

There has been a significant change in the information reporting of Foreign Bank Accounts. The latest changes which took effect recently require any U.S. person to file Form for FBAR which would not only include U.S. citizens and residents but also any person working or doing business in United States.

The IRS recently announced a new initiative designed to encourage taxpayers who have been "hiding assets offshore" to come back into the system on a voluntary basis. While some may consider the price for coming back into the system somewhat steep, the penalties are not as high as they potentially could be, and most importantly, the program allows participating taxpayers to avoid criminal prosecution. Criminal prosecution may result in fines and imprisonment as well as asset forfeiture and recovery of the "proceeds" of any property associated with the illegal activity.
This new program, which takes effect immediately, will remain in place for six months. At the end of six months, the IRS will re-evaluate its options; however, indications suggest that the penalties will become much more stringent. Under the initiative, taxpayers who have unreported income and/or assets will be required to file all returns and reporting forms, and pay all back taxes and interest for six years, as well as certain penalties for all six years with a significant reduction of the FBAR (foreign bank account report) penalty.

The IRS has instructed its agents who either have uncovered, or will uncover cases involving unreported offshore income or assets where the taxpayer did not come in through the voluntary disclosure procedure to pursue both civil and criminal avenues and consider all available penalties. This includes the maximum penalty for wilful failure to file the FBAR report (i.e., up to 50% of the total balance of the account or $100,000, whichever is greater, per violation, per signatory, per tax year) and the applicable fraud penalties. The IRS hopes that the program will encourage taxpayers to come forward voluntarily and promises that those who continue to "hide their head in the sand" will see their situation only become direr.

President Obama also announced a plan to revise IRS policies and to crack down on individuals and corporations using loopholes and off-shore "headquarters" to avoid paying their fair share of taxes. He plans to hire 800 new IRS employees to act as enforcers of the new plan, looking into and auditing corporate books to retrieve more than $200 billion potentially owed to the government. In his quick speech, Obama cited a famous address in the Cayman Islands which is listed as the headquarters for 12,000 different corporate entities.

We highly recommend our clients, friends and well wishers to take a note of this and consider filing their FBAR forms before June 30th deadline. If you have any questions or concerns than please do not hesitate to call us

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