If you are an international taxpayer who has failed to file delinquent tax returns, Reports of Foreign Bank and Financial Accounts (FBARs), or information returns — or if you have failed to report or pay tax on foreign financial assets or income, either willfully or negligently — the IRS offers options to help bring you into compliance. Lift the weight off your shoulders by bringing yourself into compliance, so you no longer have to fear the day the IRS contacts you.
Voluntary Disclosure Practice
The Voluntary Disclosure Practice provides taxpayers who have committed “willful or fraudulent” conduct in regard to failing to report foreign or domestic financial assets — and/or failing to pay taxes due in respect to those assets — an opportunity to voluntarily bring themselves into compliance. The 2014 Offshore Voluntary Disclosure Program ended on September 28, 2018 and was replaced by the new Voluntary Disclosure Practice that addresses both offshore and domestic voluntary disclosures. The Practice is based on a long-standing practice utilized by the Criminal Investigation unit of the IRS.
The Voluntary Disclosure Practice does not apply to taxpayers who may just need to amend or file a past due tax return and have not committed a tax-related crime. Other procedures, such as Streamlined Filing Compliance, Delinquent FBAR Submission Procedures, or Delinquent International Information Return Submission Procedures, discussed in further detail below, may help these taxpayers. The Voluntary Disclosure Practice specifically helps taxpayers who have committed a tax-related crime.
The Voluntary Disclosure Practice provides a way for taxpayers with criminal exposure, who knowingly did not report foreign or domestic financial assets, to come into compliance by:
- Disclosing their assets correctly to the IRS with their full cooperation, and
- Paying outstanding taxes, penalties, and interest.
This may then allow them to mitigate civil penalties and avoid criminal prosecution. If a taxpayer disagrees with the outcome, the Practice allows taxpayers to retain their right to appeal the decision.
Offshore and Domestic Streamlined Filing Procedures
The Offshore Streamlined Filing Procedures apply a zero penalty for past noncompliance for those who qualify. It applies to U.S. citizens and permanent residents who lived outside of the United States for a minimum of 330 full days in any one year out of the past three years.
The taxpayer’s failure to file must be related to “non-willful conduct.” This means the conduct regarding the failure to file and pay must be related to negligence, mistake, or the result of a good faith misunderstanding of the requirements of the law. There is no need to have previously filed U.S. tax returns or FBARs. If the taxpayer did not file their tax return and pay taxes due because of “willful or fraudulent” conduct — that is, a tax-related crime — they may be eligible for the Voluntary Disclosure Practice, described above.
The Offshore Streamlined Filing Procedures require taxpayers to submit the previous three years’ tax returns with payments including interest, FBARs for the past six years, and a non-willful certification.
Taxpayers who do not meet the non-residency requirement described above may qualify for the Domestic Streamlined Filing Procedures if they have filed U.S. tax returns (if required) for the previous 3 years and their conduct was non-willful. However, in lieu of a zero penalty for past non-compliance, taxpayers who resided in the United States will pay a 5% penalty for past non-compliance.
The documents required to be submitted under the Domestic Streamlined Filing Procedures are the same as those required under the Offshore Streamlined Filing Procedures.
Delinquent FBAR Submission Procedures
Under certain circumstances, taxpayers who have failed to file a required FBAR may submit the outstanding FBARs without being penalized under the IRS Delinquent FBAR Submission Procedures. Qualifying taxpayers will be required to submit the FBARs for the previous six years, if one was required, with a reasonable cause statement explaining why they did not submit the FBARs when they were due.
To qualify, taxpayers cannot already be under a civil examination or criminal investigation by the IRS or have been contacted by the IRS regarding their delinquent FBAR(s). If a taxpayer submits the required FBARs and had already reported the information correctly on their tax return with the applicable payment, penalties may not be assessed.
Delinquent International Information Return Submission Procedures
Under the IRS Delinquent International Information Return Submission Procedures, if taxpayers have reasonable cause for not submitting one or more required international information returns, the IRS may not assess a penalty. To qualify, taxpayers cannot already be under a civil examination or criminal investigation by the IRS or have been contacted by the IRS regarding their delinquent information returns. If a qualifying taxpayer submits the required information forms with a reasonable cause statement, penalties may not be assessed.
If you have unreported foreign income or assets — or failed to submit your tax return, FBAR, or international information return — schedule an appointment with Maryland tax attorney Jim Liang. Jim can:
✓ Review the best options to bring you into compliance
✓ Assist with each step of the relevant filing/disclosure process
✓ Help you avoid criminal prosecution
To discuss your individual situation, contact the Law Office of Jim Liang for a free consultation.