Apr 19, 2021
As you may know, we have supported a request to the CRA to extend the April 30 deadline to June 15. But if the deadline is NOT extended, here are some practical tips to reduce the burden of a COVID tax season.
“The IRS believes the 2011 initiative offers clear benefits.”
On February 8, 2011, the IRS announced its latest voluntary disclosure initiative, the 2011 Offshore Voluntary Disclosure Initiative (OVDI). This is the third major program over the last few years (the most recent being the 2009 Offshore Voluntary Disclosure Program (OVDP)). The stated goal of these programs is to allow U.S. taxpayers who are either delinquent or who have been hiding assets “off-shore” to bring money back into the U.S. and to assist taxpayers to get current with their (U.S.) taxes.
U.S. citizens and residents are required to file U.S. income tax and information returns. Failure to file these returns on a timely basis can lead to significant penalties and interest. Form TD F 90-22.1, “Report of Foreign Bank and Financial Accounts” (aka FBAR) is a treasury form that requires U.S. taxpayer to disclose their interest in non-U.S. financial accounts.
The OVDI offers reduced penalties for taxpayers who failed to report non-U.S. financial accounts and assets on an FBAR and who failed to report income from those accounts and assets on their U.S. income tax returns but who come forward now, before being caught by the IRS. Under the OVDI, there is a new penalty framework that requires individuals to pay a penalty of 25 percent of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003 to 2010 time period. Some taxpayers will be eligible for 5 or 12.5 percent penalties. Participants also must pay back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.
Taxpayers participating in the new initiative must file all original and amended tax returns and include payment for taxes, interest and accuracy-related penalties by the Aug. 31 deadline.
Participants face a 25 percent penalty, but taxpayers in limited situations can qualify for a 5 percent penalty, such as taxpayers who were not aware they were U.S. citizens. The IRS also created a new penalty category of 12.5 percent for treating smaller offshore accounts. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the 2011 initiative will qualify for this lower rate.
The IRS believes the 2011 initiative offers clear benefits to encourage taxpayers to come in rather than risk IRS detection. Under the recently enacted Foreign Account Compliance Tax Act, U.S. citizens may no longer be able to hide their offshore assets with non-U.S. financial institutions.
The IRS is making it quite clear that taxpayers hiding assets offshore who do not come forward will face far higher penalty scenarios as well as the possibility of criminal prosecution.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.
The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.
TAX TIP is provided as a free service to clients and friends of Cadesky Tax.
The material provided in Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Cadesky Tax cannot accept any liability for the tax consequences that may result from acting based on the contents hereof.