The IRS certainly has its plate full of domestic tax issues, but the agency also keeps a wary eye on international tax matters. Two recent examples are electronic requests for late-filing relief and the long-standing issue of violations of the rules regarding Reports of Foreign Bank and Financial Accounts (FBARs).
New Filing Relief Available
In a recent news release (IR 2023-146), the IRS announced a new way to submit electronic requests for relief for certain late-filed international documents. The e-filing option applies to the following:
Gain recognition agreements. Generally, U.S. taxpayers transferring property to a foreign corporation must file a gain recognition agreement. A taxpayer who fails to file a gain recognition agreement or other required documents may qualify for late-filing relief if the failure to comply wasn’t willful. What’s more, a taxpayer may qualify for penalty relief if the failure was attributable to reasonable cause. Click here for specific guidance on this issue.
Dual consolidated losses. U.S. corporations subject to the dual consolidated loss rules must file certain documents with the IRS. Taxpayers who didn’t file required documents on time may request late-filing relief if their failure to file was attributable to reasonable cause. Click here for specific guidance on this issue.
Partnership gain deferral contributions. Partnerships with a gain deferral contribution must file certain documents with their partnership returns. Taxpayers who fail to submit all required documents may request late-filing relief if their failure to comply wasn’t willful. To qualify for penalty relief, such taxpayers must show their failure to comply was attributable to reasonable cause. Click here for specific guidance on this issue.
The IRS notes that this method of filing allows taxpayers to communicate securely with the IRS, reducing their correspondence burden and delivery delays while supporting compliance. It will also allow the IRS to respond to taxpayer requests faster. Consult your Sol Schwartz & Associates tax professional on how to properly submit a request for late-filing relief.
FBAR Crackdown Forthcoming
In another recent news release (IR 2023-166), the agency announced a sweeping effort to restore fairness to the U.S. tax system — all thanks to funding from the so-called Inflation Reduction Act, enacted in August 2022. When passed, the law allocated about $80 billion to the IRS, and Objective 3 in the Internal Revenue Service Inflation Reduction Act Strategic Operating Plan is, “Focus expanded enforcement on taxpayers with complex tax filings and high-dollar noncompliance to address the tax gap.”
To that end, from an international tax perspective, the IRS promises more scrutiny of FBAR violations. The Bank Secrecy Act requires U.S. citizens with certain foreign accounts to file FBARs. The filing requirement kicks in when a U.S. person has a financial interest in, or other authority over, one or more foreign bank accounts with an aggregate balance that exceeded $10,000 during the previous calendar year.
Civil and criminal penalties back up the filing requirements. For individuals whose failure to file an FBAR is willful, the maximum civil penalty is the greater of $100,000 or half the balance in the unreported account.
According to the IRS, wealthy taxpayers “from all segments” continue to use foreign bank accounts to avoid mandatory reporting and related taxes. Says the news release: “IRS analysis of multi-year filing patterns has identified hundreds of possible FBAR non-filers with account balances that average over $1.4 million.” The tax agency intends to audit the “most egregious” potential FBAR violation cases in fiscal year 2024.
More Closely Than Ever
It’s critical for U.S. taxpayers with foreign business interests and foreign financial accounts to comply with their information-filing requirements and tax obligations. Work closely with a Sol Schwartz & Associates CPA to ensure you follow the rules. The IRS apparently will be watching more closely than ever.
If you need to confidentially discuss your situation with our international tax team, just leave us your contact information below and we will get back to you promptly to get you the help you need.