If you’re deliberating over whether to take the government up on its offer to allow you to- albeit by August 31, 2011, take note of a few of the draconian penalties for not doing so – which may get your attention.

  1. Failure to file Form TD – 90-22.1 (Report of Foreign Bank and Financial Accounts – generally referred to as “FBAR”) – the greater of $100,000 or 50% of the total balance of the account, per violation.
  2. Failure to file Form 3520 (Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts) – 35% of the gross reportable amount
  3. Failure to file Form 3520-A (Annual Information Return of Foreign Trust With a U.S. Owner) – 5% of the gross value of trust assets.
  4. Failure to file Form 5471 (Annual Information Return of U.S. Persons With Respect to Certain Foreign Corporations) – $10,000, plus an additional $10,000 for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
  5. Failure to file Form 5472 (Information Return of a 25% Foreign-Owned  U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business) – $10,000, plus an additional $10,000 for each month the failure continues  beginning 90 days after the taxpayer is notified of the delinquency.
  6. Failure to file Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation) – 10% of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.
  7. Failure to file Form 8865 (Return of U.S. Persons With Respect to Certain Foreign Partnerships) – $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after a taxpayer is notified of the delinquency.

And these onerous exactions over and above the “usual” penalties for failure to file, failure to pay, and fraud under IRC Section 6651.

Bottom line – the IRS is serious in letting taxpayers know that they expect all foreign arrangements to be reported, and related taxes timely paid.