We take this opportunity to remind Voluntary Disclosure clients of important ongoing tax reporting requirements that must be met with respect to foreign accounts.
As you already know, voluntary disclosure of a foreign financial account requires amendment of your past tax returns from 2003 through 2008, to include previously unreported foreign income. However, having entered the voluntary disclosure program and made the account tax compliant, you must still ensure ongoing tax compliance.
Thus, if you entered the Voluntary Disclosure Program and still maintained a foreign financial account at any time during 2009, you must still “check the box” on your 2009 IRS form 1040, Schedule B, Part III, line 7. This requirement is applicable to clients who had beneficial ownership of, or signature authority or other authority over, a financial account in a foreign country. If you entered the Voluntary Disclosure Program and still maintained a foreign financial account at any time during 2009, you must check the box. Even if you closed the account during 2009, you must still check the box if you maintained the account during any part of 2009.
In addition to “checking the box”, beneficial owners of a foreign financial account must report all income (including interest, capital gains and dividends) realized during 2009 in the foreign account, on their 2009 IRS form 1040, due April 15, 2010. As part of the Voluntary Disclosure Program, you will pay back taxes on income earned during 2003 through 2008. Please remember that ongoing tax compliance means that you must pay tax on foreign income earned in 2009 onward.
Moreover, the FBAR, Report of Foreign Bank and Financial Accounts (Form TD 90-22.1), must be received by the IRS by June 30 (unlike a tax form such as Form 1040, which must be mailed by the due date of April 15). The FBAR must be filed by clients who had beneficial ownership of, or signature of other authority over, any foreign financial account, including bank or securities accounts, if the aggregate value of these accounts exceeded $10,000 at any time during 2009. Clients who participated in the Voluntary Disclosure Program should ensure their ongoing compliance by timely submitting the FBAR. The Voluntary Disclosure Program covered tax years 2003 through 2008, but if the account existed at any point during 2009, then the FBAR must also be submitted for 2009, by the June 2010 due date.
Finally, if you had an interest in a foreign entity such as a foreign trust or foreign foundation, and/or during 2009 you received assets from the foreign entity, then you may also be required to file IRS form 3520 or 3520A. Please contact us for a copy of our memorandum about this issue.
The Voluntary Disclosure Program allowed you to bring your foreign account into tax compliance. Please ensure that your account continues to remain tax compliant by adhering to the ongoing reporting and tax requirements.
If you have any questions or would like our assistance in preparing the 2009 FBAR, please feel free to contact us.