Tax news specific to Bermudian residents with United States passports, i.e. dual citizens of the US/other countries and US citizens living abroad, who for various reasons such as ignorance of US tax law, or misunderstanding of their personal tax situation that renders them not fully compliant with their US tax filing and reporting responsibilities indicates that these international citizens may have received a window of flexibility from the United States Internal Revenue Service.A summary of the IRS news release last week, “Information for US Citizens and Dual Citizens Residing Outside the US”, the internal Revenue Service stated those dual citizens of the United States and other countries and US citizens who are residing outside of the United States will owe no failure to file or failure to pay penalties if they meet certain criteria when filing late tax returns.In addition, no penalties will apply for not filing reports of foreign banks and financial accounts (the FBARs) if the violation was due to reasonable cause.Ordinary US citizens, green card holders, and dual citizens of the United States residing outside the United States are subject to significantly additional and different filing and reporting requirements than required of United States domestic residents.These ordinary people (resident in other countries) who may not have correctly met their regular US tax requirements (even though they are meeting tax compliance objectives of their permanent resident country) have been included “in the net” of US Internal Revenue Service initiatives on locating “big fish” US citizens who have evaded their tax compliance responsibilities. See Reuters article by Amy Feldman, “Taxpayers with Overseas Accounts Seethe at Penalties”.According to the US Internal Revenue Service, as a United States citizen, you must file a federal income tax return for any tax year in which your gross income is equal to or greater than the applicable exemption amount and standard deduction.Generally, you are required to report your worldwide income on your federal income tax return, regardless of where you live or which country is the source of the income.If you are required to file a federal income tax return and fail to do so, or you fail to pay the amount of tax shown on your federal income tax return, you may be subject to a penalty under Internal Revenue Code (IRC) section 6651, unless you show that your failure is due to reasonable cause and not due to wilful neglect.Reasonable cause relief is generally granted by the IRS when a taxpayer demonstrates that he/she exercised ordinary business care and prudence in meeting their tax obligations but nevertheless failed to meet them.The IRS will consider all your available information, including:n The reasons given for not meeting your tax obligations;n Your tax compliance history;n The length of time between your failure to meet your tax obligations and your subsequent compliance; andn Circumstances beyond your control.You can also establish reasonable cause if you show that you were not aware of specific obligations to file returns or pay taxes, based on consideration of your personal facts and circumstances, such as,n Your education;n Whether you have previously been subject to the tax;n Whether you have been penalised before;n Whether there were recent changes in the tax forms or law that you could not reasonably be expected to know; andn The level of complexity of a tax or compliance issue; andn Your ignorance of the law if you demonstrate that a reasonable and good faith effort was made to comply with the law, or you were unaware of certain requirements, or could not reasonably be expected to know of the requirement.FEAR Filing Requirement. As a United States citizen, you may be required to report your interest in certain foreign financial accounts on Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR.)If you fail to file an FBAR, in the absence of a reasonable cause explanation, you may be subject to either a wilful or non-wilful civil penalty.Generally, the civil penalty for wilfully failing to file an FBAR can be very significant and is applicable only in cases in which there is wilful intent to avoid filing. See 31 U.S.C. § 5321(a)(5).Non-wilful violations that the IRS determines are not due to reasonable cause are subject to a penalty of up to $10,000 per violation.If IRS determines that the taxpayer had reasonable cause as listed below, there is no penalty for the violation.Factors that might weigh in favour of a determination decision that an FBAR violation was due to reasonable cause includen Reliance upon the advice of a professional tax advisor who was informed of the existence of the foreign financial account,n That the unreported account was established for a legitimate purpose andn There were no indications of efforts taken to intentionally conceal the reporting of income or assets, and thatn There was no tax deficiency (or there was a tax deficiency but the amount was de minim's) related to the unreported foreign account.There may be factors in addition to those listed that weigh in favour of a determination that a violation was due to reasonable cause.No single factor is determinative.Reasonable cause arguments may not be as successful when the taxpayer's background and education indicate that he/she should have known of the FBAR reporting requirements, there was also tax deficiency related to income from the unreported foreign accounts, and whether the taxpayer failed to disclose the existence of the account(s) to his/her tax preparer.Beginning in 2012, additional tax compliance for US citizens with foreign accounts will also require US taxpayers who have an interest in certain specified foreign financial assets with an aggregate value exceeding $50,000 to report those assets to the IRS utilising Form 8938 attached to their tax return.Martha Myron, CPA CFP(US) TEP JP www.marthamyron.com is an international Certified Financial Planner™ providing Financial Counsel for Cross Border Living™ on international tax, estate, and retirement strategies for Bermuda residents with US connections, and US citizens living and working abroad.Member of the American Citizens Abroad Tax Advisory Council. www.americansabroad.org Contact mmyron[AT]patterson-partners.com or 296 3528 at Patterson Partners Ltd.