IRS to Dual Citizens: It’s Time to Come Clean (re FATCA, FBAR and Other Foreign Tax Reporting)

Just in time for the 2011 tax season, here’s a roundup of recent legal updates that address tax reporting requirements – and penalties for non-compliance – for US dual citizens with foreign income and financial assets:

IRS Issues Fact Sheet Providing Information on Federal Income Tax Return and Foreign Bank Filing Requirements – Potential Penalties Applicable To Dual U.S Citizens and Residents (Fox Rothschild)

“The federal government has known for some time that taxpayers who are dual citizens or dual residents of the United States and another country may have knowingly or innocently failed to timely file U.S. federal income tax returns. This would occur, for example, where a U.S. citizen lived outside of the United States for an extended period of time without having formally expatriated both for U.S. immigration and tax law purposes.” Read more»

IRS Summarizes Reporting Requirements and Penalties for Dual Citizens Residing Outside the United States (Akerman Senterfitt)

“Dual citizens are required to file a federal income tax return for any tax year in which their gross income is equal to or greater than the standard deduction or relevant exemptions. Gross income includes worldwide income from all sources, even sources outside the United States. Thus, a dual citizen must report all income, regardless of whether the income originated from a foreign source or United States source. Failure to report such worldwide income results in noncompliance with United States income tax rules.” Read more»

Fear Factors: Dual Nationals and the IRS (Sanford Millar)

“The IRS issued a press release on December 13, 2011 which was addressed to ‘dual nationals’ and attempts to clarify their reporting obligations and potential penalty relief mechanisms. What is very clear from the press release is that the IRS is putting the ‘dual national’ community on notice that it will enforce the filing requirements and impose penalties if this class of taxpayer does not come forward. The IRS is also alerting the ‘dual national’ community that it will look at not imposing penalties based upon ‘reasonable cause’.” Read more»

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Related Commentary and Analysis:

Your Assets Exposed! What The United States Is Doing To Make You Completely Bare (Akerman Senterfitt)

On December 14, 2011, the Internal Revenue Service (“IRS”) issued temporary and proposed regulations in a Notice of Proposed Rulemaking relating to provisions that require foreign financial assets to be reported to the IRS for tax years beginning after March 18, 2010.” Read more»

FATCA: Guidance Delayed Until “Soon After the New Year” (Akerman Senterfitt)

“On December 15, Internal Revenue Service Commissioner Douglas Shulman announced that new proposed regulations under the Foreign Account Tax Compliance Act (‘FATCA’) will be released ‘soon after the new year.’ The Commissioner indicated that these regulations will provide guidance to address concerns that have been raised regarding the implementation of the requirements under FATCA.” Read more» 

No 15% Rate On Controlled Foreign Corporation Income Inclusion (Charles “Chuck” Rubin)

“Under the Controlled Foreign Corporation (CFC) rules, U.S. shareholders of foreign corporations will have to include in their income their pro rata share of the CFC’s income on a pass-through basis under certain circumstances… Does that mean the U.S. shareholder can pay tax on this income at the preferential 15% rates presently allowed for qualified dividend income if the CFC is otherwise a qualified foreign corporation? I think most international tax planners would tell you the answer is no.” Read more»

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