Current Tax News: Penalty Relief and Foreign Income Filing Requirements

Tax laws are always changing or being interpreted and the IRS is always issuing new programs and revenue procedures.  It is important for a tax attorney to stay as current as possible with such matters.  The article below has been drafted by a Denver tax attorney at The McGuire Law Firm regarding current tax matters and IRS programs.

In June 2014 the IRS is beginning a program that will assist small businesses with retirement plans that owe penalties for not filing certain reporting documents.  These small businesses can be avoided by filing current and prior year forms during this IRS pilot program.  The IRS may actually reach out and contact certain small business that have retirement plans, and appear to be unaware of their reporting requirements for their plans.  The Internal Revenue Service hopes that this contact and overall program will bring certain businesses into compliance with their filing requirements.

Form 5500 (or Form 5500 series) can lead to large tax penalties when not filed.  Plan administrators or a plan sponsor can incur penalties from the IRS up to $15,000 per return.  If  a business has already been assessed a penalty for late filing, the business would not be eligible for a penalty abatement or waiver through the current program.  It is also important to note that the current program only applies to retirement plans maintained by certain business and not all businesses will be eligible.

A small business can include multiple returns that would be late within a single submission, and penalty relief may be available to the small business for more than one year or tax period.  Currently, the IRS is not charging a filing fee to request penalty relief through the program.

For more information regarding this penalty relief program, you can review Revenue Procedure 2014-32.

June 15 is typically the day for US citizens and residents aliens living abroad, or those serving in the military to file their tax returns.  In 2014, it was June 16th because of the calendar.  In order for a taxpayer to claim the two month extension, they must attach a statement to their 1040 individual income tax return stating which situation applies to them.

In regards to foreign income, United States federal law requires all US citizens and resident aliens to report worldwide income, which includes income from foreign bank accounts, foreign security accounts, foreign trusts and other foreign income on their 1040 individual income tax return.  In addition to such reporting, US taxpayers with foreign accounts of which the aggregate exceeds $10,000 at anytime during the tax year (in 2013) are required to file electronically with the Treasury Department a Financial Crimes Network Form 114, which is titled Report of Foreign Bank and Financial Accounts.  The FBAR laws have recently been established to prevent the evasion of tax by taxpayers who earn foreign income that is not reported to the IRS.  For example, a Swiss bank may not report interest income on a 1099 INT that a US Bank would and thus the taxpayer earning interest in such Swiss bank account may not report the interest as income to the Internal Revenue Service.

This Form 114 has replaced TD 90-22.1, which was the previous FBAR form used by the IRS.  The Form is due to be filed with the treasury on or before June 30th, and it must be filed electronically.  The form can be obtained online at the BSA E-filing System, and individuals with foreign accounts should note that the June 30th deadline cannot be extended such as for other income tax returns.

If you have questions regarding any of the above tax matters, you can speak with a Denver tax attorney by contacting the McGuire Law Firm.  The McGuire Law Firms offers all potential clients a free consultation with a tax attorney.