The IRS has made significant changes to the forms associated with the Streamlined Domestic Offshore Procedures, a voluntary disclosure to the US government of offshore accounts, assets and income. The streamlined program was designated for US taxpayers who exhibited “non-willful” conduct in terms of why they failed to report offshore accounts and assets, pay taxes. Depending upon residency (foreign or domestic) US taxpayers are required to submit either IRS Form 14653 (foreign residency) or IRS Form 14654 (US resident) requiring 3 years of amended tax returns, FBARs and provide a complete and full disclosure of all offshore accounts, assets, investments and income for the period in question.
However, the forms have been modified to require extensive documentation and explanation that justifies the taxpayer’s claim of “non-willful” conduct. The claim of non-willful conduct is essential to these cases, as it reduces offshore non-reporting penalties from 100% for non-disclosure, 27.5% to 50% for OVDP or Offshore Voluntary Disclosure Program participants (willful) to a relatively tiny 5% penalty. Many taxpayers have attempted to take advantage of the streamlined domestic offshore procedures in order to simply avoid large penalties. The IRS is tightening the enforcement, and the new forms are evidence of this.
New changes require the domestic or foreign US taxpayer to disclose if they were out of the country each year in the 3 year period in question. In addition, the IRS has added an ominous section that requires the non-willful violator 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.”
The 5 page forms are an extensive documentation and disclosure under penalties of perjury to the IRS about all offshore activities. The risk to the US taxpayer is substantial and irreversible. If the US taxpayer is unable to document “non-willful” behavior to the satisfaction of the IRS (note: ignorance is not acceptable, or “non-willful”) the taxpayer faces the full fury of the IRS and the US Justice department including $100,000 or 50% of the highest accumulated balance of all offshore accounts (whichever is higher) in FBAR related penalties for each incidence, back taxes, and ultimately criminal prosecution.