Given the government's aggressive efforts to enforce the obligations of taxpayers to report all foreign financial activities
Washington, DC (PRWEB) October 1, 2009
With the October 15, 2009 Offshore Account Voluntary Disclosure Settlement Initiative deadline fast approaching, proper reporting of foreign corporate interests and dividend disclosures has become a top IRS priority. Notably, the IRS has stepped up pressure on U.S. taxpayers to come forward and correct all failures to properly disclose their ownership interest in foreign corporations. "It's not just a failure to file a Form TD F 90-22.1 - Report of Foreign Bank and Financial Accounts (FBARs) - that can get taxpayers in trouble," states Kevin Thorn of Thorn Law Group. "Taxpayers are also required to disclose ownership, acquisitions and dispositions of foreign corporate stock on a Form 5471 - Information Return of U.S. Persons with Respect to Certain Foreign Corporations."
With all the recent attention being given to FBARs - the form U.S. taxpayers must file to inform the government of accounts they own or have an interest in at foreign financial institutions - Form 5471 obligations have been largely overlooked. Thorn wants to change that. According to Thorn, too many U.S. taxpayers are unaware of this obligation, or do not realize that it exists in addition to and separate from the much-publicized FBAR filing requirement. The obligation applies to individuals, partnerships, corporations, trusts and estates who have ownership interests in certain foreign corporations. It also applies to U.S. citizens or residents who are officers or directors in certain foreign corporations.
People in this situation have cause for concern. The penalties for failing to properly file a Form 5471 and disclose interest in a foreign corporation can be steep. They include a $10,000 penalty for each accounting period of each foreign corporation that was not disclosed to the IRS, plus an additional $10,000 for each 30-day period after a taxpayer receives notice from the IRS for a failure to properly file a Form 5471. In addition, the IRS can impose a 10% reduction of foreign tax credits that otherwise could be claimed by the taxpayers, adding an additional 5% reduction penalty of foreign tax credits for each 30-day period after a taxpayer receives notice from the IRS for a failure to properly file a Form 5471. In some situations, the IRS may apply criminal penalties against the taxpayer for failure to file a Form 5471.
However, taxpayers who failed to properly file Forms 5471 may mitigate these harsh penalties if they can establish that there was "reasonable cause" for the failure to file a Form 5471. Taxpayers must also establish that they have substantially complied with the requirements under Form 5471.
Further, taxpayers who failed to properly disclose interest in foreign corporations may be able to take advantage of the IRS's Offshore Account Voluntary Disclosure Settlement Initiative. As has been widely reported, in March 2009, the IRS announced the creation of the Offshore Account Voluntary Disclosure Settlement Initiative to encourage taxpayers to come forward and disclose previously undisclosed offshore accounts in exchange for reduced penalties and no criminal sanctions. It's not just taxpayers who failed to file FBARs that can take advantage of the IRS Initiative. Thorn advises that taxpayers who failed to properly file a Form 5471 can escape a good portion of the penalties, depending on their circumstances, by taking advantage of the IRS Settlement Initiative and filing or amending their Forms 5471.
The benefits of the Initiative are only available to taxpayers who come forward and make a voluntary disclosure of their interests in foreign corporation by October 15, 2009. "Given the government's aggressive efforts to enforce the obligations of taxpayers to report all foreign financial activities," Thorn advises "individuals, trusts and businesses should take advantage of the opportunity to ensure they are in full compliance." He adds, "If taxpayers are not in compliance, now is the time to come forward and get their affairs straightened out with the possibly of significant savings."
For additional information on the news that is the subject of this release, contact Kevin E. Thorn or visit http://www.thorntaxlaw.com.
About Thorn Law Group, PLLC:
Thorn Law Group, PLLC is a law firm dedicated to helping clients resolve complicated international tax and financial problems.