TaxNewsFlash-Exempt Organizations

June 25, 2009
No. 2009-51

PRINTABLE VERSION

IRS Update of FAQs on Voluntary Disclosure Initiative Does Not Extend June 30, 2009 Filing Deadline for 2008 FBAR, but Addresses Late-Filed 2008 FBAR

The IRS has updated a list of “frequently asked questions” (FAQs) under a Voluntary Disclosure Initiative (VDI) announced on March 26, 2009. The VDI was intended to provide a way for taxpayers who did not report taxable income in the past to voluntarily come forward and resolve their tax matters—including a voluntary disclosure of foreign accounts and foreign entities. Some of the FAQs concern the Report of Foreign Bank and Financial Accounts (often referred to as the FBAR) that is filed on Form TD F 90-22.1.

The earlier released FAQs (specifically No. 9) stated that filers that had reported all their taxable income but only recently learned of their FBAR filing obligation were not to use the VDI, but instead ought to:

File delinquent reports (for pre-2008 years) and a statement explaining the late filing with the IRS Detroit Computing Center, in accordance with the instructions to the TD F 90-22.1, and

Send copies of the delinquent FBARs, together with copies of tax returns for all relevant years, to the special IRS unit in Philadelphia assigned to handle VDI submissions by September 23, 2009

FAQ No. 9 states that the IRS will not impose a penalty for the failure to file the FBARs, if the filer reported and paid tax on all taxable income. FAQ No. 9 implies that the 2008 FBAR is to be timely filed by the June 30, 2009 due date.

In updating the FAQs, the IRS essentially made 2008 an “old” year which can be included with delinquent filings made by the September 23, 2009 deadline. The IRS indicated that these delinquent FBAR filings—including the 2008 FBAR—will not be subject to late filing penalties as long as all taxes have been paid. However, under this provision, the FBAR will still be delinquent and a reasonable cause statement must be attached explaining why the FBAR is being filed late along with a copy of the filer’s tax return.

Text of FAQ No. 43 is reproduced verbatim below:

43. Re: FAQ 9 A taxpayer recently learned that they have an FBAR filing obligation but they do not have sufficient time to gather the information necessary to properly file the FBAR by the June 30, 2009 due date. How should the taxpayer proceed?

Taxpayers who reported and paid tax on all their 2008 taxable income but only recently learned of their FBAR filing obligation and have insufficient time to gather the necessary information to complete the FBAR, should file the delinquent FBAR report according to the instructions and attach a statement explaining why the report is filed late.

Send a copy of the delinquent FBAR, together with a copy of the 2008 tax return, by September 23, 2009, to the Philadelphia Offshore Identification Unit at the address in FAQ 9.

In this situation, the IRS will not impose a penalty for the failure to file the FBAR. Additionally, if all 2008 taxable income with respect to a foreign financial account is timely reported and a United States person only recently learned they have a 2008 FBAR obligation and there is insufficient time to gather the necessary information to complete the FBAR, the United States person may follow the procedures set forth above and no penalty will be imposed.

For 2008 tax returns due after September 23, 2009, the tax return does not need to accompany the 2008 FBAR.

The FAQs are available electronically on the IRS Web site: http://www.irs.gov/pub/irs-utl/faqs-revised_6_24.pdf

For a printable version, click here.

KPMG Observation

The instructions to the FBAR form provide that delinquent reports can be filed with the usual IRS processing center in Detroit along with an explanation of why the report is late (i.e., a statement of reasonable cause). Filers are not instructed to include copies of their tax returns with late filings nor submit duplicate copies with another IRS office. The FAQs (discussed above) do not alter the June 30, 2009 filing deadline for the 2008 FBAR, and do not appear to preclude a taxpayer from filing late FBARs in the manner prescribed by the form’s instructions.

The updated FAQs do not discuss whether an equity interest in a foreign hedge fund or other alternative investment funds is a reportable foreign financial account similar to an equity interest in a foreign mutual fund.

Note that earlier this month, the IRS temporarily suspended the reporting requirement with respect to foreign bank accounts that was scheduled to be filed by June 30, 2009, for those persons who are not U.S. citizens, residents, or domestic entities.

For more information, contact Rick Speizman, National Partner-In-Charge, KPMG’s Exempt Organizations Tax Practice (ExoTax), at (202) 533-3084 or rspeizma@kpmg.com

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