By Vicki Needham - 11/24/10 05:33 PM EST
The IRS is stepping up its oversight of individual taxpayers with foreign financial assets, according to a report released Wednesday by the Treasury Inspector General for Tax Administration.
"As a growing number of taxpayers now conduct foreign financial transactions, it is good news that the IRS is increasing its oversight of this area,” said J. Russell George, the Treasury Inspector General for Tax Administration, in a statement. "With the recently added disclosure requirements, the IRS must ensure the effective implementation of this provision," he said.
The numbers of those filing reports regarding foreign accounts has increased each year between 2004 and 2009, and with it penalties and collections, the report found. Those with financial accounts greater than $10,000 must file a Report of Foreign Bank and Financial Accounts (FBAR) with Treasury.
The number of FBAR-related examinations increased by 96 percent between 2004 and 2009, while penalty assessments grew to $20.5 million from $4.2 million. FBAR penalty collections increased to $9.8 million from $1.8 million during the same period.
While the IRS and Treasury’s Financial Crimes Enforcement Network (FinCEN), have revised the FBAR form and instructions, neither has established a method to estimate the potential population of required filers because the FBAR filing program is a self-reporting program.
Under new financial rules that went into effect in March, individual taxpayers with an aggregate balance of more than $50,000 in foreign financial assets must file new foreign financial-disclosure statements with their income tax returns, which will allow the IRS to verify the information or lack of information filed. The IRS also is developing procedures and guidance to implement this new reporting requirement, the report said.