Global Tax Adviser
December 13, 2011

Accidental Americans — IRS Penalty Relief for Tax Returns and FBAR

Ian Bristol
Toronto, U.S. Corporate Tax

Jim Yager
Toronto, International Executive Services

The IRS has provided relief and guidance for U.S. citizens or dual citizens residing outside the United States who did not file a required U.S tax return or Report of Foreign Bank and Financial Accounts (FBAR) by December 7, 2011. Penalties will not be imposed in all cases, according to a three-page fact sheet that summarizes the federal income tax return and FBAR filing requirements and potential penalties.

Outstanding returns
According to the fact sheet, taxpayers with outstanding tax returns who owe no U.S. tax will not be assessed with penalties for a failure to file a return or a failure to pay tax.  

Where taxpayers with outstanding tax returns do owe tax, the IRS says it may reduce or waive penalties where the taxpayer is able to show that the failure to file or pay was “due to reasonable cause and not due to willful neglect”. Similarly, no FBAR penalty applies if the violation was “due to reasonable cause”.

The fact sheet notes that taxpayers only have to file tax returns and FBARs going back six years.

"Reasonable cause"
In the fact sheet, the IRS provides examples of the information, facts and circumstances that it will use to determine whether a taxpayer’s failure to file a tax return or FBAR was due to “reasonable cause”. However, it is not clear how this policy will be interpreted and applied.

Further details pending?
The IRS may release additional guidance in the future, as it has stated that it is still considering the topics discussed in the fact sheet and will provide additional information as it becomes available.

For more information, contact your KPMG adviser.

© 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.