Please note that the IRS has just announced an extension of the Offshore Voluntary Disclosure program to September 9, 2011!

The Internal Revenue Service has announced a special voluntary disclosure initiative:

• designed to bring offshore money back into the US tax system

• intended to help people with undisclosed income from offshore accounts to get current with their taxes and to achieve compliance with United States tax laws

• available to taxpayers who come forward and complete all requirements on or before August 31, 2011

• enabling compliance that will help in avoiding substantial civil penalties and reduce the risk of criminal prosecution

The “2011 Offshore Voluntary Disclosure Initiative” is available to taxpayers who come forward and complete all requirements on or before August 31, 2011

US Citizens and lawful permanent residents (green-card holders):

The U.S. Income Tax system is based on citizenship or residence US Citizens:

• are required to file a U.S. income tax return annually

• report their worldwide income from all sources

• also file in the country in which they reside

The average U.S. citizen living in Canada:

• has no U.S. source income and generally there is no U.S. income tax

• has an annual U.S. tax filing obligation, an administrative requirement that goes along with being a U.S. citizen

• should not make the assumption that there will be no tax on the U.S. tax return. This has caused many people to become complacent in respect of these filings. Some individuals have ceased filing their U.S. returns altogether HOWEVER this may lead to serious consequences and penalties

Information Reporting Requirements

United States persons and certain foreign persons may be subject to certain information reporting requirements, including:

Report of Foreign Bank and Financial Accounts (Form TD F 90-22.1)

A United States person with a financial interest in or signature or other authority over any financial account in a foreign country must file Form TDF 90-22.1 “Report of Foreign Bank and Financial Accounts” (FBAR) if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.

Classifications of Taxpayers for U.S. Tax Purposes… Follow this link for the definitions of the term United States Person or Foreign Persons

All geographical areas outside the United States, Puerto Rico, the Northern Mariana Islands, and territories and possessions of the United States (including Guam, American Samoa, and the United States Virgin Islands) are deemed to be “foreign countries”.

A willful failure to file the FBAR can result in a civil penalty of the greater of $100,000 or 50% of the value of the foreign account at the time of the violation.

Information Return of U.S. Persons with Respect to Certain Foreign Corporations (Form 5471)

If a U.S. individual or company with certain direct, indirect or constructive ownership over  certain foreign corporations, such person must disclose the ownership interest by filing a Form  5471 “Information Return in U.S. Persons with Respect to Certain Foreign Corporations”.

A separate Form 5471 and applicable schedules for each foreign corporation must be attached to  the U.S. federal income tax return of the U.S. person required to file the information return.

Failure to file the form can result in civil and/or criminal penalties. A $10,000 penalty may be imposed for each annual reporting period of each foreign corporation for failure to furnish the required information in a timely manner.

Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts (Form 3520A)

Taxpayers must also report various transactions involving foreign trusts (see 2011 OVDI Frequently Asked Questions and Answers). This return also reports the receipt of gifts from foreign entities.

Reporting on Form 3520 must also be filed where a U.S. person receives, in the aggregate, gifts or bequests in excess of $100,000 from a nonresident alien or a foreign estate during the year. To avoid any risk of penalties it would be advisable to file Form 3520 within 90 days of a reportable event.

Penalties for not filing in a timely manner or if the information provided is incomplete or incorrect are assessed at 35 percent of the gross value of the “reportable event.” The reportable event could be a distribution from the trust or a transfer of property to the trust.

An Extended List of Information Reporting Requirements and Forms

• Report of Foreign Bank and Financial Accounts (Form TD F 90-22.1)

• Information Return of U.S. Persons with Respect to Certain Foreign Corporations (Form 5471)

• Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts (Form 3520A)

• Information Return of a 25% Foreign –Owned US Corporation of a Foreign Corporation Engaged in a U.S. Trade or Business (Form 5472)

• Return by a U.S. Transferor of Property to a Foreign Corporation (Form 926)

• Return of U.S. Persons With Respect to Certain Foreign Partnerships (Form 8865)

AG Tax LLP Can Help

Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts who can help you with your U.S. and Canadian Tax preparation, Cross-Border Tax consulting, and all of the necessary accounting to satisfy both Canadian and U.S. regulations.

We will help you navigate through the required paperwork and filings.

Hopefully you will be able to navigate your way through some of the tasks and forms related to filing the appropriate taxes and reporting the required information. However, the opportunities for errors, omissions and the risk of consequential penalties are such that it just makes good sense to engage the cross border tax professionals at Aylett Grant Tax LLP to help you get it right, the first time. We will help you to get current with the IRS, file the necessary tax returns and file the required disclosure forms.

It is important to note that each tax payer situation is unique, there may or may not be penalties that may be assessed by the IRS regardless of the fact that the tax payer may have taken advantage of the Offshore Voluntary Disclosure Initiative. We recommend that you come and meet with us to review your individual situation to determine what penalties you may be subject to.

To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:

  • 416-238-5920 (Greater Toronto Area, ON)
  • 604-538-8735 (Greater Vancouver Area, BC)
  • 780-702-2732 (Greater Edmonton Area, AB)

 

Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.