Why has the IRS questioned or outright rejected many of the applications under the Streamlined Domestic Offshore procedures? How has the IRS FBAR definition of “non-willful” changed? Previously the forms associated with the streamlined domestic offshore procedures (IRS Forms 14653 and 14654) simply asked the taxpayer to “provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs. If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice.”
Evidently, too many forms were not satisfactorily explaining the taxpayer’s non-willful reasoning, and the IRS recently greatly expanded the scope of information requested. The new forms demand a more forthright, transparent declaration of personal and financial facts surrounding the taxpayer’s failure to file FBARs, disclose offshore accounts, assets and income and pay associated taxes. In addition to asking for specific reasons for the failure to fully report this information (and the name of any associated professional advisor), the IRS is asking the taxpayer to disclose all associated information, including facts that are unfavorable to the taxpayer’s position.
The IRS expanded the description asking for the specific reasons a taxpayer failed to report all income, pay all taxes and report all offshore activity required by the IRS FBAR. The IRS instructs you to provide a complete description of your personal background, financial history and experience, and any other facts pertaining to your failure to fully report. In addition, the IRS demands a full and transparent explanation of how the taxpayer originally obtained the money contained in all foreign accounts, assets and investments.
Examples include inheritance, or that accounts were opened when you lived outside of the US, or that there was a specific business reason behind the establishment of the accounts. The taxpayer must explain all activities surrounding the offshore accounts including all contact and management with deposits, withdrawals, and the control or decision making you exercised over the management of the accounts and investment of the associated funds. The form instructs the taxpayer to provide the complete story of the offshore asset or account.
How has the IRS FBAR definition of “non-willful” changed? The IRS is continuing to reveal its hand, and many US taxpayers who attempted to skirt the issue of FBAR penalties by claiming the “non-willful” exemptions to FBAR penalties provided by the Streamlined Domestic Offshore Procedures are in for a rude awakening. If you have not come into compliance with FBAR reporting, you must give serious consideration to the recent actions of the IRS and the clear direction the agency is taking toward taxpayers who claim “non-willful” activity.
We invite you to contact us for a free and substantive consultation regarding offshore accounts, FBAR reporting and questions you may have about coming into compliance by calling 866-631-3470.