Do you have money in a foreign bank account? Yes-keep reading, No-you’re done.

Have you ever had more than the equivalent of $10,000 US currency in a non-US account over the past 10 years? Yes-keep reading, No-you’re done.

Have you reported the interest income from this account on your tax return every year and filed the TD F 90-22.1 form (also known as the FBAR)? Yes-you’re done. No-keep reading.

If you’re still reading, then you need to know about the Offshore Voluntary Disclosure Initiative. Basically, you have until August 31, 2011 to report to the IRS all of your undisclosed income from offshore accounts and get current on your tax return.

The quick and dirty of it is: if you have investments overseas that are worth over $10,000 and you haven’t been reporting that income on your US tax return, the fines and penalties for getting caught are outrageous. The penalty for failing to file your TD F 90-22.1 (FBAR) can be as high as the greater of $100,000 or 50% of the total balance of the foreign account per violation. If the IRS decides that fraud penalties should apply, the fraud penalty is essentially 75% of the unpaid tax. Even if they don’t charge you with fraud, there are failure-to-pay penalties of up to 25% of your unpaid tax and accuracy related penalties which run from 20 to 40% of the tax owed.

You could even face criminal charges. If you’re convicted of tax evasion, you could be subject to up to five years in prison and a fine of up to $250,000. The penalty for filing a false return is up to three years in prison with a fine of up to $250,000. And the penalty for failing to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR could lead to up to 10 years in prison and fines of up to $500,000.

Now that I’ve got you scared to death, I’m sorry. Let’s face it, you’re not a criminal. You were probably just sending money home to help your family and no one ever told you about this FBAR stuff before. At least that’s what I’m hearing from people. And I apologize for not blogging about this before. I file lots of FBARS for my international clients; its standard procedure. I guess I didn’t realize how many people were unaware of that requirement.

But you’ve got a deadline of August 31 to meet, so you’d better get your stuff together. You need:

1. Copies of previously filed federal tax returns for all the years covered by the voluntary disclosure

2. Complete and accurate amended federal returns (form 1040X) for all years covered by the voluntary disclosure

3. Complete and accurate form TD F 90-22.1 (FBAR) for calendar years 2003 through 2010

4. You’ll have to cooperate in the voluntary disclosure process, provide information on offshore financial accounts, institutions and facilitators. You’ll also have to sign agreements to extend the period of time for assessing tax and penalties.

5. You’ll have to pay the 20% accuracy-related penalties on the full amount of your underpayments of tax for all years, plus the failure to file penalties if applicable, and the failure to pay penalties if applicable, or you could pay, in lieu of all other penalties that may apply, including FBAR and offshore-related information return penalties, a miscellaneous Title 26 offshore penalty equal to 25% of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the period covered by the voluntary disclosure. (Some taxpayers will be eligible to pay 5 or 12.5% penalties under certain narrow circumstances);

6. You’ll have to submit full payment of all tax, interest and penalties with the required submissions or make good faith arrangements with the IRS to pay that amount in full.

7. Execute a closing agreement on Final Determination Covering Specific Matters, form 906.

That’s a boatload of information to pull together and a substantial amount of penalty to pay as well. Considering that you could be facing huge fines and imprisonment, it’s worth the effort to get it done and get it done now.

This is a very important issue and there’s a lot more information than just what you can get out of my little blog. If you need to do the OVDI, you need to check out the IRS website. This link will take you to the main page on the Offshore Voluntary Disclosure Initiative: http://www.irs.gov/newsroom/article/0,,id=234900,00.html

That page also has links to instructions in several languages, including Hindi, Chinese and Russian.

Personally, I find the Questions and Answers page to be the most helpful: http://www.irs.gov/businesses/international/article/0,,id=235699,00.html