In brief, the page covers (i) the income tax return filing obligations (including the new foreign asset Form 8938 for income tax returns beginning in 2012) and (ii) the FBAR filing obligations. The page also summarizes relief from penalties that might apply for income tax underreporting and underpayment and for failure to file FBARs. It is a good summary. It is particularly good at providing a fair sense of when the taxpayer may have reasonable cause for income tax and FBAR deficiencies. This is not definitive advice as to when the reasonable cause exception may apply in a specific case, but for the relatively uninitiated, it is a good starting point.
The FBAR discussion is, in my judgment, incomplete. It says that a U.S. citizen "may be required to report your interest in certain foreign financial accounts" on the FBAR. U.S. citizens (and indeed non-U.S. citizens required to file an FBAR) should remember that it is not just a beneficial or title ownership interest that must be disclosed but also signatory and other authority over the account beneficially owned by another person.
Although the page is specifically addressed to U.S. citizens (dual or otherwise) living outside the U.S., the matters covered also apply to U.S. citizens living in the U.S. and non-citizen U.S. persons (e.g., U.S. resident aliens) who own foreign assets (including foreign financial accounts) or, as to the FBAR, have signatory or other authority over foreign financial accounts.
Now, to a point that might particularly interest readers of this blog, The Fact Sheet does offer some fairly cryptic guidance as to what to do about the past.
As to problems on prior year income tax returns, the page only says "Generally, you only need to file returns going back six years." Two issues: First, the word "need" might suggest some type of obligation on the taxpayer's part. There is no obligation to file an amended return. There are prudential reasons to do so. An amended return will usually be a "qualified amended return" ("QAR") which knocks out all penalties except in the case of fraud. Second, the statement does not address the noisy versus quiet disclosure issue that has raged among taxpayers and practitioners. A noisy disclosure is indicated where the taxpayer has risk of criminal prosecution, otherwise a quiet disclosure seems to be the order of the day. The Fact Sheet does not suggest that any reasonable cause statement be attached and, indeed, in those situations where there could be reasonable cause, the amended return will avoid penalty anyway as a QAR.
As to FBARs for prior years that were not filed, the page says:
If you learn you were required to file FBARs for earlier years, you should file the delinquent FBARs and attach a statement explaining why they are filed late. You do not need to file FBARs that were due more than six years ago, since the statute of limitations for assessing FBAR penalties is six years from the due date of the FBAR. As discussed below, no penalty will be asserted if IRS determines that the late filings were due to reasonable cause. Keep copies, for your record, of what you send.In other words, for FBARs, the IRS is sanctioning quiet disclosures for FBARs at least for those who can articulate a reasonable cause defense. This taxpayer does not have to go shove his face in front of CI, but if there is real criminal and criminal prosecution exposure, this taxpayer might want to be very noisy. If one is going to go the quiet route of sending in delinquent FBARs, I suggest that they not become too exuberant in articulating the basis for reasonable cause. Criminal penalties could apply if inaccurate facts are stated, and, perhaps even if there are no inaccurate facts but the facts were put together in a way intended to mislead.
Also, the quoted statement seems to address a situation where the taxpayer was not aware of the obligation in the earlier years but now finds that he or she was obligated to file. If he or she really did not know of the obligation, then that person has no criminal exposure because the crime requires "willfulness," which is a specific intent crime. (OK, I know that a jury can convict on belief of willfulness even where, in fact, the defendant had no willfulness; that is a collateral cost of a system permitting convictions where less than certainty of the elements exists; I often tell my clients that, for willfulness crimes, you can be convicted even though you know you did not have the required willfulness but, for whatever reason, the jury thinks you did.)
Finally, what should the person intentionally failed to file FBARs in earlier years do? Obviously, that person would be at some risk (hard to quantify) in attempting a reasonable cause statement that would be at best misleading. The person could just send in delinquent FBARsFBAR after the filing deadline has passed. The crime was committed when the FBAR was not filed timely. Filing a delinquent FBAR will not wipe out the crime. Filing the delinquent FBAR might qualify as some type of voluntary disclosure or create risk to the Government in attempting to prosecute, but that is only a strategic reason to file delinquent FBARs. I guess the way I could say that is that, if a client who had failed to file prior year FBARs, could I advise him that he commits a new criminal act by failing to file the delinquent FBARs? I don't think I could. The crime has already been committed and all filing delinquent FBARs can do is to mitigate the damage. Finally, these taxpayers could do a noisy disclosure and at least avoid criminal prosecution.