Amnesty International: the IRS and Overseas Accounts

By Yana Weaver

The new IRS amnesty plan is for people who have undisclosed foreign bank and other financial accounts overseas and/or who have unreported income from those accounts. If you fall under the “unreported income” category you will need to talk to an attorney who can guide you through this process. If you need a referral we will be happy to recommend an attorney who specializes in this area.

The rest of this blog is for those who reported all their overseas income to the IRS, but failed to disclose certain information. Keep reading! Even if you think this doesn’t apply to you, you might be in for a nasty surprise.

Did you have any foreign bank accounts with balances over $10,000 at any time during the year? No? Okay. How about signing authority over foreign bank accounts that belong to your relatives? Did you receive any gifts or bequests from relatives/friends who are not U.S. residents after 2003? Did you report them to the IRS?

Do you have any dealings with a foreign corporation and you fall under “Oops, forgot to file Form 5471 or Form 5472″ category? Remember, form 5471 is required to be filed not only if you own stock of the foreign corporation, but also if you were/are an officer or a director of such entity.

Here’s a scary one. Have you purchased any real estate overseas through either a foreign trust or a corporation? How about the piece of land in Mexico where you want to build your dream house? Did you buy it through a Mexican bank trust (Fideicomiso)? Have you been filing Forms 3520 “Annual Return To Report Transactions With Foreign Trusts and Receipts of Certain Foreign Gifts” and Form 3520-A “Annual Information Return of Foreign Trust With a U.S. Owner”?

By now you might be thinking, “big deal, I had no income to report, so even if I didn’t file these reports, the IRS won’t be able to penalize me, right?” Wrong! Penalties for not filing the forms are a whopping 35% of the fair market value of the underlying property for not filing Form 3520 and 5% for not filing Form 3520-A. Total? No, per each year that the return was not filed. That’s the bad news…

Now the good news! All these things can be cleaned up at 0% penalty cost during the limited-time amnesty. The IRS is ready to waive the penalty if you step up and report all delinquent returns before September 23, 2009. No extensions!

You might think the IRS will never find out, and maybe they won’t, but they sure are trying. For those who have been following the UBS case, the bank has already disclosed 250 client names in February in order to settle criminal charges that threatened the bank’s survival. If Swiss banks are giving information to the IRS despite their strict banking privacy laws, then how long do you think it will take the U.S. to get this data from Mexico?

What to do now? Don’t panic but contact us ASAP. Have the following information ready: name of the foreign trust, name of the trustee, their address, date the trust was created, purchase price of the real estate. We’ll prepare the forms for all the applicable years. You’ll have to get it signed by the trustees and follow our filing instructions but please, please take advantage of this IRS amnesty while there is still time.

Here is a link to a recent article on msnbc.com about the UBS investigation.

http://www.msnbc.msn.com/id/32386100/ns/business-world_business