The Internal Revenue Service has extended the deadline for filing a report on foreign bank accounts to Sept. 23 from the original June 30 deadline as it seeks to crack down on offshore tax havens.

The IRS recently issued a revised version of Form TD F 90-22, “Report of Foreign Bank and Financial Accounts,” also known as an FBAR, in an effort to encourage more U.S. taxpayers to reveal their offshore holdings.

“Some taxpayers 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,” wrote the IRS on its Web site. “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.”

The delinquent FBAR, along with a copy of the 2008 tax return, is supposed to be sent by Sept. 23 to the IRS’s Philadelphia Offshore Identification Unit.

In such a situation, the IRS said it would not impose a penalty for failure to file the FBAR, especially when the taxpayer only recently learned of the need to file an FBAR.

This marks the second time the IRS has changed the reporting obligations in the past month. A few weeks ago, the IRS backtracked on a change in the definition of “United States person” that would have extended the FBAR reporting requirements to people who are not citizens or residents of the U.S. (see IRS Backtracks on Foreign Bank Account Change).

The IRS also expanded the Frequently Asked Questions page about the FBAR this week, adding another 21 questions and answers about the form and its requirements, including about John Doe summonses, which the IRS has been serving on UBS in an effort to learn the identities and holdings of about 52,000 U.S. taxpayers with accounts at the Swiss bank.

“There are several important clarifications in the new set of FAQs,” said tax attorney Jim Mastracchio, a partner with the law firm Caplin & Drysdale. “The most significant is the IRS’s recognition that taxpayers can challenge the 20 percent penalty associated with delinquent FBAR filings, provided the facts and circumstances support the taxpayer's position.”

Mastracchio noted that the IRS stated that it may not be able to look back more than three years to calculate past-due taxes. “It is possible that taxpayers will not have to agree to amend six years of tax returns,” he said. “Again, the facts of each individual case will dictate whether or not the IRS can look back more than three years.”

The IRS also clarified several other procedures that will help taxpayers through the voluntary disclosure process, Mastraccchio added. Individuals who are mere signatories on accounts can avoid all FBAR penalties by simply filing the delinquent FBARs with the appropriate service center. Similar treatment was extended to individuals who need to file Form 3520 for interests in foreign trusts or Form 5471 for interests in foreign corporations, under certain circumstances.

A related issue is hedge fund holdings. The Treasury Department and IRS have not issued definitive guidance regarding the application of the FBAR filing requirement to holdings in a foreign investment fund, according to the law firm Paul Hastings, but recently senior IRS personnel have informally indicated that certain foreign pooled-investment funds could be viewed as “foreign financial accounts” for purposes of the FBAR-filing requirement.

“This has created substantial uncertainty as to whether the FBAR-filing requirement may apply to certain taxable and tax-exempt U.S. investors in, and U.S. managers of, foreign investment funds, and to domestic investment funds (both private and registered funds) holding interests in foreign investment funds,” said Paul Hastings in a client alert. “In view of this current uncertainty and the civil and criminal penalties for failure to timely file a required FBAR, investors, funds and fund managers with an interest in, or signature or other authority over, foreign pooled investment funds should consider making a protective FBAR filing, either by the June 30, 2009, deadline or, if the three conditions for penalty relief in the recent IRS guidance are satisfied, by Sept. 23, 2009.”

Paul Hastings also noted that the IRS has recently issued guidance on delinquent FBAR filings for previous years, indicating that it would extend the deadline to Sept. 23 for these delinquent filings as well. Taxpayers who failed to file a required FBAR for previous years but who reported and paid tax on all taxable income in such years may file the delinquent FBARs with an attachment explaining the failure to timely file and copies of tax returns for the relevant years. “The IRS has indicated that it will not impose penalties for late FBARs that satisfy the requirements of this voluntary compliance program,” said the firm.

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