Orange County FATCA Tax Attorney
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Orange County FATCA Lawyer
Many of the clients who seek legal help from the Orange County FATCA attorneys at Evolution Tax and Legal, both business and individuals, have failed to properly report their U.S. and Foreign income and assets.
The reason of these failures varies widely, from the common mistake of not attaching a tax form to your tax return, to the negligent omission of certain foreign income and assets from your return, to the scenario where clients purposefully did not report certain income and assets as they thought it was not in their best interest to do so.
Thankfully, there are various programs promulgated by the U.S. that allow persons in all of these scenarios to come out voluntarily and disclose their incorrect prior reporting. These are informally known as “disclosure programs” and require a legal expert to guide you through the requirements of each program, depending on which one fits your situation the best.
Generally, the program that is best suited for you depends upon the “willfulness” of the errors in your prior tax reporting. The programs surrounding negligent errors and omissions of reporting foreign assets on a return, generally allow for a simplified filing method where no additional tax or interest is due on your late filing. For those mistakes that are negligent but also include some omission of income, the applicable reporting program is a bit more stringent and will include an associated penalty with the late filing. Finally, for the omission and non-reporting of income or assets that is due to an intentional or willful action, the reporting programs are extremely stringent and require a larger penalty to be paid, along with the follow-up of an audit of some sort. The general disclosure programs we take our client base through are listed below.
IRS Voluntary Disclosure Practice
For those who intentionally or fraudulently misreported income or assets on their past filings and are now looking to come clean with the IRS, the Voluntary Disclosure Practice is for you. Essentially, this program provides people protection against criminal prosecution for coming cleaning and accurately reporting and paying their taxes as they should have in the first place.
There is a very formal process implemented by the IRS to be taken through this program and should not be attempted without sound legal guidance from an Orange County tax attorney experienced in voluntary disclosures. As part of this program, the IRS requires a minimum of a 6-year disclosure. This requires the person entering the program to prepare and file directly with an IRS auditor from the time of their criminal investigation unit to at least six years prior of tax returns, as well as any other applicable reporting forms as implemented by the IRS and the United States Treasury.
In return for being provided protection against potential criminal prosecution, the IRS imposes a penalty regime based upon the year in the disclosure period that has the highest amount of income that went unreported, as well as a penalty based upon the year with the highest value of assets that went unreported.
This is a disclosure program that can take more than several months to complete and requires you to work hand in hand with an IRS auditor. If you believe you have misreported your U.S. or foreign income and assets and are at risk of prosecution, please contact our Orange County FATCA tax lawyers at Evolution Tax and Legal to discuss your options and eligibility associated with this program.
Offshore Voluntary Disclosure Program
A step down from a disclosure through the IRS’s Voluntary Disclosure Practice, is a disclosure through the IRS’s Streamline Offshore Disclosure Program. This is a program that allows taxpayers who have non-willfully failed to disclose certain foreign assets and income to come clean with the IRS. The big distinction between this program and the IRS’ Voluntary Disclosure Practice is one of “willfulness” and the protections they each provide. While the Voluntary Disclosure Practice provides criminal protection on a disclosure, the Streamline Offshore Disclosure Program only provides civil protection.
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 a FATCA attorney at Evolution Tax and Legal before making any sort of disclosure through this program.
Offshore Voluntary Disclosure Program Frequently Asked Questions
Will I have to go through an audit as part of my voluntary disclosure?
Generally, a full-blown audit is not required for disclosures through the Streamlined Offshore Disclosure Program, Delinquent FBAR Submission Program, and Delinquent International Information Return Program. However, it is not guaranteed that the IRS will select your disclosure package for review once they have processed it.
However, disclosures through the IRS’s Voluntary Disclosure Practice mandatorily require an audit. That is because disclosures through the Voluntary Disclosure Practice provide taxpayers with protections against certain criminal prosecution. These disclosures are very thorough, and may even require an interview of the disclosed.
How long does it take the IRS to process my disclosure package?
In my experience, it generally takes the IRS three to four months to disclose through the Streamlined Offshore Disclosure Program, Delinquent FBAR Submission Program and Delinquent International Information Return Program. Upon completion of the process, the IRS will generally issue a notice to the taxpayer making the disclosure notifying them that their disclosure practice has been processed and accepted by the IRS.
As for disclosures through the IRS’s Voluntary Disclosure Practice, this disclosure takes significantly longer, with a process that can last longer than a year. Specifically, the disclosure process works in three steps. In step one, you provide the IRS’s Criminal Investigation unit a voluntary disclosure request pre-check whereby the IRS determines if you are eligible to make a disclosure through its Voluntary Disclosure Practice. Once the pre-check is processed by the IRS, you have 45 days to complete step two. In this step, you provide the IRS certain details about the non-compliance you are disclosing supplemented by a narrative that must explain the facts behind such non-compliance. Once step two is completed and processed by the IRS, you enter step three. Step three requires the filing of amended tax returns and FBARs directly with the IRS’s Criminal Investigation unit that is supplemented by an audit. Once the audit is completed and the IRS accepted the amended return filed, the disclosure is over.
If I owe tax as part of my disclosure package, how do I pay the IRS?
There are various methods to pay any additional tax, fines, or penalties owed through an IRS disclosure program. Generally, the amounts due can be paid by check directly to the Internal Revenue Service. However, alternatively, there are payment method options directly on the IRS website which you can find here.
Will I have to go through an interview as part of entering the IRS’s disclosure programs?
Generally, an interview is not required by the IRS for disclosures through the Streamlined Offshore Disclosure Program, Delinquent FBAR Submission Program, and Delinquent International Information Return Program.
However, the same cannot be said for disclosures through the IRS Voluntary Disclosure Practice. In my experience, these disclosures are supplemented by an interview of the disclosing taxpayer. The taxpayer being interviewed is allowed to maintain the presence of their attorney through the interview to help them answer questions asked by the IRS.
If reported all my foreign income but failed to properly report my foreign accounts, what program is best for me?
If you even fail to report a single dollar of foreign income, the best disclosure programs for you are the IRS’s Streamlined Offshore Disclosure Program of the Voluntary Disclosure Practice. These programs will allow you to report previously unreported income while protecting you from civil and criminal penalties for such failure.
As for the Delinquent FBAR Submission Program and Delinquent International Information Return Program, these disclosures are preserved solely for those who reported all of their foreign income on previous US tax filings. These programs allow taxpayers to properly report previously incorrectly reported foreign financial assets. The Delinquent FBAR Submission Program and Delinquent International Information Return Program provide against civil penalties applicable to the incorrect reporting of foreign financial assets. They do not, however, protect against civil and criminal penalties for the failure to report income earned with respect to such foreign accounts.
Am I eligible to utilize the IRS voluntary disclosure programs if I live outside the United States?
Yes. These programs are even available to those taxpayers who reside outside of the United States.
Contact Our Orange County FATCA Lawyer
If you believe you have misreported any of your foreign income or assets in past tax filings or wish to have a review of your past tax filings to make a proper determination, please contact our legal team for a free consultation. Our tax attorneys will examine your past filings and make the right program recommendation for you. Thereafter, we can assist by preparing the forms required for the disclosure program that best fits you. For questions or to schedule a free consultation, please give us a call at (949) 229-6015.