[IMGCAP(1)]There are a number of due dates that don’t apply to all taxpayers, but are easily missed when they do apply and will subject the taxpayer to harsh penalties if they overlook them.
For example, the due date for the first required minimum distribution from an IRA or 401(k) plan for the year a taxpayer turns age 70 ½ can be delayed until April 1—not April 15—of the year following the year in which the taxpayer turns 70 ½.
(For all subsequent years, including the year in which the taxpayer was paid the first RMD by April 1, the taxpayer must take the RMD by December 31 of the year). As for penalties, if an account owner fails to withdraw an RMD, fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50 percent.
Another frequently overlooked date is the date for filing the FBAR (Foreign Bank and Financial Accounts Report) form. This form, formerly TD 90-22.1, is now known as FinCEN Form 114. It must be filed electronically by June 30. Since the form is not filed with the tax return, it is often overlooked. It must be filed by anyone having a financial interest in or signature authority over at least one financial account located outside of the U.S., where the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year.
The penalty for failure to comply? A person who is required to file an FBAR who fails to properly file a complete and correct FBAR may be subject to a civil penalty not to exceed $10,000 per violation for nonwillful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50 percent of the balance in the account at the time of the violation, for each violation.
So practitioners who have clients with overseas accounts should alert them now that the FBAR will soon be due.
For those individuals who fail to file the FBAR form by June 30, there are several options to help alleviate some of the high penalties and fines, according to Dennis Brager of the Brager Tax Law Groups. One option is the Offshore Voluntary Disclosure Program, where some taxpayers may be eligible for penalties as low as 5 percent of the account balance, although most will pay a 27.5 percent penalty, Brager indicated.
Of course, the FBAR should not be confused with FATCA, enacted as part of the HIRE (Hiring Incentives to Restore Employment) Act. Unlike the FBAR form, the FATCA form, IRS Form 8938, is filed with the tax return. And FATCA has a higher threshold than FBAR. A married couple living in the U.S. and filing a joint tax return are not required to file Form 8938 unless their total specified foreign assets exceed $100,000 on the last day of the tax year or more than $150,000 at any time during the year. And unlike the FBAR, it is not required from individuals who do not have a return filing requirement.
Happily, there is an Offshore Voluntary Disclosure Program in place with the IRS to enable taxpayers in violation of the FBAR rules to avoid significant penalties and criminal prosecution, according to Tony Torchia, CPA, of RotenbergMeril.
“Modeled after the Offshore Disclosure Initiative, OVDP was passed in 2012 and increases the maximum Foreign Bank Account Reports-related penalty from 25 to 27.5 percent,” said Torchia. “The OVDP requires submission of income tax returns and FBARs for eight tax years to avoid prosecution and penalties. Although there is not a set deadline for people to apply, the terms of the program could change at any time, which is why immediate compliance is necessary.”