The standard tax season has ended for Boston tax payers, but FBAR season has just begun. FBAR stands for Foreign Bank Account Report, and filings are required to be completed by June 30, 2011. FBAR requirements are critical for taxpayers in the U.S. who hold one or more foreign financial account.
Foreign financial accounts include overseas life insurance policies, bank accounts and pension plans. Experts state that failing to meet FBAR requirements can prove more serious than failure to file a standard tax return. And while FBAR returns are strictly informational, if you fail to file a return, you could be hit with some of the harshest penalties in the tax system.
Congress has pushed FBAR requirements in conjunction with the IRS. The efforts are designed to ensure that U.S. citizens are making the required payments on their foreign accounts. Experts are fearful that taxpayers, and even some tax preparers, remain unaware of FBAR requirements. In fact, some experts have confirmed that they routinely see foreign income reported on tax returns that indicate having no foreign accounts
A second limited amnesty will go into effect until August 31 in the effort to benefit taxpayers who failed to disclose overseas accounts in previous years. The first limited amnesty took place in 2009. The IRS will also require a new form to be filled out by individuals who possess other foreign assets. That form will be released in conjunction with the 2011 form 1040.
Tax credits can offset foreign taxes that have been paid up to the equivalent United States tax amounts. Tax credits are meant to lessen or even prevent double taxation. If a United States citizen is living overseas, they are not required to pay taxes on the first $92,900 earned this year.
The IRS recently published formal FBAR guidelines. Taxpayers can review these guidelines in full at IRS.gov.
Source: Wall Street Journal, "Sacre Bleu! The Foreign-Account Penalty," Laura Saunders, 29 April 2011