The Internal Revenue Service is increasing its oversight of taxpayers with foreign financial assets and collecting four times as much in penalties, according to a new government report.
The report, by the Treasury Inspector General for Tax Administration, found that the number of individuals filing a Report of Foreign Bank and Financial Accounts, or FBAR, with the Treasury Department has increased annually from 2004 to 2009. Individuals doing business in the U.S. who have foreign financial accounts with an aggregate value of more than $10,000 are required to file an FBAR.
TIGTA also found that the number of FBAR-related examinations increased 96 percent (from 334 to 656) from fiscal year 2004 to FY 2009. In addition, the number of FBAR penalty assessments grew from $4.2 million to $20.5 million, an increase of 388 percent over the same period, while FBAR penalty collections grew from $1.8 million to $9.8 million, an increase of 444 percent. The IRS, in collaboration with the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, has also revised the FBAR form and instructions and conducted education and outreach efforts on the filing of FBARs.
“As a growing number of taxpayers now conduct foreign financial transactions, it is good news that the IRS is increasing its oversight of this area,” said TIGTA Inspector General J. Russell George in a statement. “With the recently added disclosure requirements, the IRS must ensure the effective implementation of this provision.”
However, neither the IRS nor FinCEN has an established method to estimate the potential population of required filers because the FBAR filing program is a self-reporting program. Persons filing abroad often open their financial accounts in jurisdictions with bank secrecy laws.
Under the Hiring Incentives to Restore Employment Act, which President Obama signed in March, individual taxpayers with an aggregate balance of more than $50,000 in foreign financial assets must file new foreign financial-disclosure statements with their income tax returns. This new reporting requirement allows the IRS to verify the information or lack of information filed. The IRS is also developing procedures and guidance to implement this new reporting requirement.
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