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Offshore Compliance

 

"The circumstances of taxpayers with non-U.S. investments vary widely, the IRS offers four options for addressing Previous Failure to comply with U.S. tax and information return obligations with respect to those investments."

 

Offshore Voluntary Disclosure

The Offshore Voluntary Disclosure Program (OVDP) encourages taxpayers to disclose income from offshore accounts and pay the required taxes without the treat of criminal investigation. The OVDP allows taxpayers who failed to disclose income from offshore account a second chance to get current with their offshore reporting and who may be eligible to have their penalties reduced.

The IRS is offering taxpayers with undisclosed income from offshore accounts another opportunity to get current with their tax returns.

  1. FBAR
  2. Collection Information Statement for Wage Earners and Self-employed Individuals
  3. Collection Information Statement for Business
  4. Consent to Extend the Time to Assess Tax

Streamlined Filing Compliance Procedure

The streamlined filing compliance procedures describe below are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part. The streamlined procedures are designed to provide to taxpayers in such situations with:

  1. A streamlined procedure for fling amended or delinquent returns, and
  2. Terms for resolving their tax and penalty procedure for filing amended or delinquent returns, and
  3. Terms for resolving their tax and penalty obligations

Eligibility. The modified streamlined filing compliance procedures are designed only for individual taxpayers, including estates of individual taxpayers. The streamlined procedures are available to both U.S. individual taxpayers residing outside the United States and U.S. individual taxpayers residing in the United States.

Taxpayers must certify that conduct was not willful. Taxpayers using either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures, will be required to certify, in accordance with the specific instructions set forth below, that the failure to report all income, pay all tax and submit all required information returns, including FBARs (FinCEN Form 114, previously Form TD F 90-22,1) was due to non-willful conduct.

IRS has initiated a civil examination of taxpayer's returns for any taxable year. If the IRS has initiated a civil examination of taxpayer's returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the streamlined procedures. Similarly, a taxpayer under criminal investigation by IRS Criminal Investigation is also ineligible to use the streamlined procedures.

Taxpayers eligible to use streamlined procedures who have previously filed delinquent or amended returns must pay previous penalty assessments. Taxpayers eligible to use the streamlined procedures who have previously filed delinquent or amended returns in a attempt to address U.S. tax and information reporting obligations with respect to foreign financial assets (so-called "quiet disclosures" made outside of the Offshore Voluntary Disclosure Program (OVDP) or its predecessor programs) may still use the streamlined procedures by following the instructions set forth below. However, any penalty assessments previously made with respect to those filing will not be abated.

General treatment under the streamlined procedures. Tax returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will be processed like any other return submitted to the IRS. Consequently, receipt of the returns will not be acknowledged by the IRS and the streamlined filing process will not culminate in the signing of a closing agreement with the IRS.


Delinquent FBAR Submission Procedures

Taxpayers who do not need to use either the OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax, should file the delinquent FBARs, if taxpayer:

  1. have not filed a required Report of Foreign Bank and Financial Accounts (FBAR) (FinCEN Form 114)
  2. are not under a civil examination or a criminal investigation by the IRS, and
  3. have not already been contacted by the IRS about the delinquent FBARs

Statement of Explanation. Taxpayer should also Include a statement explaining by you are filing the FBARs late.
All FBARs should be filed electronically at FinCEN

The IRS will not impose a penalty for the failure to file the delinquent FBARs if you properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted


Delinquent International Information Return Submission Procedures

Taxpayers who do not need to use the OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax should file the delinquent information returns with a statement of all facts establishing reasonable cause for the failure to file, if taxpayer:

  1. have not filed one or more required international information returns,
  2. have reasonable cause for not timely filing the information returns,
  3. are not under a civil examination or a criminal investigation by the IRS, and
  4. have not already been contacted by the IRS about the delinquent information returns

Describe your situation in the reasonable cause statement. As part of the reasonable cause statement, taxpayers must also certify that any entity for which the information returns are being filed was not engaged in tax evasion.  If a reasonable cause statement is not attached to each delinquent information return filed, penalties may be assessed in accordance with existing procedures.

  1. All delinquent international information returns other than Forms 3520 and 3520-A should be attached to an amended return and filed according to the applicable instructions for the amended return. 
  2. All delinquent Forms 3520 and 3520-A should be filed according to the applicable instructions for those forms. 
  3. A reasonable cause statement must be attached to each delinquent information return filed for which reasonable cause is being requested.