Streamline Disclosure Program
The IRS’s Streamline Disclosure Program is one that allows taxpayers who have non-willfully failed to disclose certain foreign assets and income to come clean with the IRS. The big qualifier for this program incidence of ‘non-willfulness” behind the improper reporting of foreign income and tax to the IRS. If the requisite ‘non-willfulness’ can be shown, the IRS’s Streamline Offshore Disclosure Program provides taxpayers who utilize it civil protection against the imposition of civil penalties related to the late filing, payment and improper reporting of tax returns.
In a disclosure through the Streamline Offshore Disclosure Program, the person will have to amend and report the three prior years of tax returns and FinCen Form 114 (better known as an FBAR) for the prior six years. As a result of disclosing certain foreign income and assets through this program, the person is provided civil protection against many penalties that could be assessed against the value of income and assets not previously reported. In exchange, the person disclosing must pay a 5% penalty on the value of assets of any given year within the six-year disclosure period with the highest asset value.
If you have negligently failed to report foreign assets and income and want to come clean with the IRS, please contact the Orange County FATCA attorneys at Evolution Tax and Legal to discuss your options as it pertains to filing through the Streamline Offshore Disclosure Program
Delinquent FBAR Submission Program
If you were not aware, a US person is required to file Form FinCen 114, better known as a Foreign Bank and Financial Account Report (FBAR), if they hold foreign bank or investment accounts that exceed a value of $10,000 at any point in the year.
If you happen to fail to timely file an FBAR (or file at all), and you do not need to use either the Voluntary Disclosure Practice or Streamlined Filing Compliance Procedures to disclosure your non-compliance, you may submit your FBARs through the Delinquent FBAR Submission Program.
To submit your late FBARs through this program, your delinquent or non-filed FBARs will need to be prepared along with a statement explaining why you are filing the FBAR late and submit them electronically with FinCen.
What is important about this program is that the IRS will not impose a failure to file penalty upon the filing of your delinquent FBARs. However, it is important to note that you will only receive this treatment if you properly reported and paid tax on the income from the foreign accounts reported on your delinquent FBARs and have not been contacted by the IRS regarding an audit of your delinquent FBARs. This requirement is more complex than you would think. Do you truly know if you reported all the income you should have from your foreign accounts? Before jumping into this program on your own, please contact our FATCA attorneys in Orange County, CA to make sure that you are eligible for this program or would be better suited to disclose your foreign assets via a different disclosure program.
Delinquent International Information Return Program
Finally, if you have failed to attach or properly report one of the many foreign informational returns with your tax return (such as Form 8938, Form 1116, Form 8833, etc.), that is not the FBAR, you may file the delinquent form through the Delinquent Foreign Information Return Program.
Like the Delinquent FBAR Submission Program, you must have properly reported all the income and paid all the tax related to the information delinquently filed through this program. Thus, this program will only work if you do not submit through the Voluntary Disclosure Program or the Streamline Offshore reporting Program. Furthermore, you must not have been contacted by the IRS with respect to an audit regarding the delinquent information returns.
However, separately and in addition to the requirements above, a “reasonable cause” statement must be submitted along with the disclosure package. “Reasonable cause” has a special definition within the Internal Revenue Code and is defined by a myriad of case law.
Due to the nature of this disclosure program’s requirements, such as determining if you have reported all of your income correctly and the need to submit a ‘reasonable cause” statement, please make sure you consult with an international tax lawyer at Evolution Tax and Legal before making any sort of disclosure through this program.