QUESTION: Thanks for all the great articles and books that you have
shared with us over the years. I do have a few questions which I hope
you can help with:

1) Is there a penalty for filing the TDF Foreign account form late? If
so what is the penalty?
2) What if you have filed for an extension on your 1040 till October?
Can you file TDF form late too?
3) Do you have to report offshore ownership of precious metals to the
IRS?
4) If I deposit 15k into an offshore account which has a pre-existing
overdraft of 20k, does this account need to be reported to the IRS?

REPLY: On your first question, section 5321(a)(5) of the U.S. Code
(See
http://www4.law.cornell.edu/uscode/html/uscode31/usc_sec_31_00005321----000-.htm\
l)
provides for a penalty of up to $10,000 for a non-willful failure to
comply with the requirements of U.S. Code section 5314. Sec. 5314 of
the U.S. Code does not directly address the subject of filing a late
return. The instructions to the Form TD F 90-22.1 do not address the
subject of a late filed return. The most recent version of the form
(with instructions) on the IRS web site is dated July, 2000. The only
reference to penalties in the instructions is about criminal penalties
and includes no reference to a late filing. The IRS has a web page
with questions and answers about the form, but it does not discuss the
subject of penalties for late filing. (See
http://www.irs.gov/businesses/small/article/0,,id=148845,00.html )
However, William Perez, a former IRS employee, states in an article in
About.com that "If you miss the filing deadline, that's not a problem.
You should file TD F 90-22.1 to report your foreign bank accounts even
if you miss the June 30th deadline." I'm not willing to tell my
clients that it is not a problem because there is no clear law or
regulations to the effect that the IRS can't impose a penalty for a
late filed return.

As for your second question, an extension of time to file an income
tax return does NOT extend the due date for the FBAR form. It is due
on June 30th and is not included with your income tax return.

With respect to reporting the offshore ownership of precious metals,
the question is whether that could be construed to be a "financial
account". It seems to me that the IRS would regard an arrangement
where you have a share of a pool of precious metals as a financial
account. But if you own coins or bullion that are simply being stored
in a safe deposit box, I would not regard that as a financial account
and I think it is not likely the IRS would try to stretch the
definition of a financial account that far.

On the fourth part of your question, it seems to me that the IRS would
be likely to treat an overdraft of that amount as an open line of
credit that would be comparable to having a foreign credit card that
is one of the foreign accounts they want you to report.

I have compiled answers to about 50 questions regarding reporting
foreign accounts, along with background information on the law and how
it has evolved. For information about that report, see
http://www.offshorepress.com/fbar.htm

Vern Jacobs

The comments in this memorandum are not intended to constitute an
opinion regarding any specific tax issues because additional tax
issues may exist that could affect the tax treatment of the tax issues
addressed in this memo. This memorandum does not consider or reach a
conclusion with respect to those additional issues and was not written
and cannot be used for the purpose of avoiding penalties under code
section 6662(d). For further details see
http://www.offshorepress.com/vkjcpa/disclosurerules.htm