Relief For Taxpayers Who Underreported Foreign Assets
If you inadvertently under-reported a few foreign assets under the IRS FBAR and FATCA compliance requirements, the dollar volume and income associated was minor, and you can affirm under penalty of perjury that you were not willfully or intentionally intending to avoid US taxes, the Streamlined Domestic Offshore Procedures may offer a less expensive alternative to the OVDP or Offshore Voluntary Disclosure Program. As long as your failure to disclose foreign assets was not willful, you can report those assets now and pay taxes and penalties as low as 5% using the Streamlined Domestic Offshore Procedures.
Additions to the Offshore Voluntary Disclosure Program or OVDP
Beginning July 1, 2014 US taxpayers residing in the United States will have the option to consider Streamlined Domestic Offshore Procedures, a new alternative as part of the IRS OVDP or Offshore Voluntary Disclosure Program. The new procedures provide additional relief to US taxpayers who have “non-willfully” or inadvertently under-reported foreign bank or investment accounts, or gross income earned offshore from a variety of sources including:
- foreign stocks and investments
- foreign bank or investment accounts
- bank accounts for foreign branches of US banks
- foreign hedge funds and private security funds
- foreign mutual funds
The information relating to balances or income from these sources should have been fully disclosed on FBAR or other foreign information related IRS forms, and resulting US taxes should have been paid.
The IRS is offering resident US taxpayers the opportunity to avoid paying additional penalties including the FBAR penalties, information return penalties or accuracy-related penalties. These penalties can amount to a significant additional cost, especially when taken over a period of several years. The “look-back” period for the IRS relating to these issues is 8 years.
The taxpayer will still be responsible for paying the offshore penalty provisions contained within Title 26, equal to 5% of the highest aggregated balance for all accounts and investments associated with these provisions during the years in the “covered tax return period and covered FBAR period.” What this means is the IRS will take the total amount of all accounts and the value of all investments and select the highest valuation point – the highest total value and balance – across all of the applicable years, and apply the 5% penalty to that amount, regardless of the present balance or subsequent use of those funds.
The new guidelines speak directly to the 5% penalty for not reporting asset/income on FBAR FinCEN form 114), the 5% penalty for not reporting assets/income on IRS form 8938 Statement of Specified Foreign Financial Assets, and the 5% penalty for reported accounts/ownership where gross income was not reported or under-reported.
Who Qualifies for the Streamlined Domestic Offshore Procedures and What is “Non-Willful”?
The OVDP streamlined procedures are available to US taxpayers with foreign accounts or assets including:
- Citizens of the United States
- Lawful Permanent Residents
- US Taxpayers Who Meet the “Substantial Presence” test of IRC section 7701(b)(3)
US taxpayers are required to provide disclosure relating to foreign bank or investment accounts, stocks, securities, precious metals, business ownership or interest, mutual funds or private securities via the Foreign Bank Account Report (FBAR) or other IRS international information forms.
The errors or omissions must have been “non-willful” according to IRS definitions in order to qualify for the new procedures. Non-willful conduct is the failure to completely, accurately and fully disclose all account information, balances, investments, valuations, earned income and property values of foreign or offshore interests due to a simple failure to file, a misunderstanding of IRS forms, guidelines or US law, or inadvertent or inaccurate reporting or calculations on the part of the taxpayer.
Contact an Experienced Tax Attorney to Discuss the IRS OVDP Streamlined Domestic Offshore Procedures
The OVDP program, and the Streamlined Domestic Offshore Procedures are voluntary programs that must be applied for. They offer some protections, but may expose US taxpayers to other risks. As an experienced tax attorney, Janathan Allen is able to provide the protections of “attorney-client privilege” while applying extensive legal, tax and accounting expertise to your unique situation. You will be able to discuss and analyze your options in an environment that encompasses several professional disciplines without having to shoulder the expense of each separate professional.
Your information will remain protected and private in ways that are unavailable to CPAs or other tax advisors. Contact the legal, tax and accounting professionals at Allen Barron today to schedule an appoint, or call for a complimentary initial consultation at 866-631-3470. Together, we will evaluate all that has happened, the extent of your holdings and potential exposure, and develop strategies to maximize the protection and valuation of those assets while reducing or eliminating tax and potential criminal liabilities.