The deadline for filing tax returns has now passed, but another deadline approaches. For American taxpayers with foreign financial accounts, the "Foreign Bank Account Report" or FBAR must be filed by June 30th.
The information required by FBAR includes more than just offshore bank accounts. It can also encompass overseas life-insurance policies and nonbank accounts. And it is very dangerous to fail to file an FBAR - even more dangerous than failing to file a tax return.
The reason a failure to file is so dangerous is that FBAR penalties are among the most severe in the tax system: $100,000, or half the value of the account, per year, for willful failure to file. These penalty rates can easily leave a taxpayer owing far more in penalties than was ever in the accounts to begin with.
Congress is looking out for every penny they can get, so the Internal Revenue Service is being extra diligent in pursuing American taxes owed on accounts, regardless of where they are located.
For U.S. citizens living abroad, the first $92,900 of earned income will be tax free in 2011. Also, to lessen the probability of double taxation, a tax credit will offset foreign taxes paid, up to the amount owed in taxes to the IRS.
There is also an amnesty program for taxpayers to come forward to reveal undisclosed offshore accounts. The deadline for this amnesty is August 31st. Reportedly, there will also be a new form to be submitted with 2011 tax returns that will require disclosure of even more offshore assets. However, Orange County offshore account tax attorneys note that this form has not been released yet.
Source: Yahoo! Finance "Sacre Bleu! The Foreign-Account Penalty" 4/29/2011