August 03, 2011

IRS Provides Limited Extension of August 31, 2011 Deadline for Offshore Voluntary Disclosure Initiative

Background

For U.S. taxpayers not fully disclosing their offshore financial accounts on required foreign bank account reports (FBARs) for part or all of the eight years 2003-2010, the U.S. Treasury Department has adopted a new Offshore Voluntary Disclosure Initiative (OVDI) limiting penalties on such late disclosures.  This has been scheduled to close on August 31, 2011, by which date all documents must be submitted by the taxpayer.

Observation:  This August 31, 2011 deadline has not provided taxpayers and their advisors much time to enter the new OVDI and provide all relevant documents to the Internal Revenue Service (IRS).

Limited extension of deadline

Recognizing that taxpayers may not be able to make a complete submission by August 31, 2011, the IRS has updated its Frequently Asked Questions and Answers under the OVDI as follows:

“FAQ 25.1.  A taxpayer may request an extension of the deadline to complete his or her submission if the taxpayer can demonstrate a good faith attempt to fully comply with FAQ 25 [discussing submissions required to enter the OVDI] on or before August 31, 2011.”

Observation:  The FAQ contemplates a maximum extension of up to 90 days, or until November 30, 2011.

The FAQ provides three conditions to such an extension:

1. Filing of properly completed and signed agreements to extend the period of time to assess tax (including tax penalties) and to assess FBAR penalties;
2. Including in the request for extension a statement of those items that are missing, the reasons why they are not included, and the steps taken to secure them; and
3. The request being made in writing and sent on or before August 31, 2011 to:  Internal Revenue Service, 3651 S. I H 35 Stop 4301 AUSC, Austin, TX 78741, ATTN: 2011 Offshore Voluntary Disclosure Initiative.

Observation:  The FAQ does not provide examples of reasons for missing items and steps taken to secure them, which will help demonstrate a good faith attempt to comply.  However, many taxpayers and advisors have experienced difficulties or delays in obtaining complete details of foreign financial accounts, in spite of written and other inquiries to institutions holding those accounts.

If you have any questions, please contact Bauerle and Company.

This publication has been prepared by EisnerAmper LLP for informational purposes only. These materials do not constitute accounting, tax or legal advice and cannot be relied upon by any taxpayer for the purpose of avoiding penalties imposed under the Internal Revenue Code.

Redistributed by Bauerle and Company, P.C. with permission

PKF North America is an association of independently owned public accounting firms who share educational, client service, best practice and marketing resources, and benefit from various ranges of expertise.

PKF NA provides its members with specialized technical resources and thought leadership as well as invaluable networking and professional development opportunities, empowering them to better serve growth-minded businesses across all industries (or sectors).