Streamlined Offshore Compliance Procedures Provide a Pathway to Correct Foreign Income Tax Reporting Problems

American expatriates, recent immigrants, and wealthy individuals make up a diverse cross-section of the American population. However, there is at least one thing that each of these groups has in common. That is, an individual belonging to any of these groups are far more likely to hold or control foreign assets than other American taxpayers. An expat may keep foreign accounts for the convenience of carrying out daily transactions. A wealthy individual might seek to diversify their asset holdings. A recent immigrant may keep foreign accounts to send remittances back to family members who stayed behind.

Regardless of one’s reasons for keeping foreign accounts, taxpayers have certain tax obligations regarding foreign assets. For one, these assets must be disclosed under FBAR when the aggregate foreign assets held by the individual exceeds $10,000. If the taxpayer receives income in the form of interest or dividends, he or she will need to report that income and pay taxes.

Failures to satisfy these and other offshore tax obligations can lead to huge fines, penalties, and interest. However, expats and American taxpayers living outside of the United States can avoid the fines and penalties they would otherwise be obligated to pay. Individuals can correct past offshore tax mistakes by entering into the IRS’s Streamlined Offshore Voluntary Compliance program. US CPA for expats, Ted Kleinman of U.S. Tax Help, can assist with all aspects or your disclosure.

Who Can File for Streamlined Voluntary Compliance?

All taxpayers are theoretically eligible to file, but in practice, only taxpayers who have concerns about how they handled their tax obligations will have the ability to make a voluntary disclosure. If you wish to make a voluntary disclosure about FBAR mistakes, you will have to select the right program. It is essential to understand that the Streamlined Voluntary Offshore Compliance program is suitable only for taxpayers who did not willfully violate the law. For tax purposes, willfulness is viewed as an intentional or voluntary disregard of a known legal duty.

Because you will submit an array of tax and financial information to the U.S. government, it is wise to consult with a tax professional prior to taking any action regarding a voluntary disclosure.

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Taxpayers Living Outside of the United States Can Eliminate Offshore Penalties

The streamlined voluntary compliance procedures for taxpayers living outside of the United States can eliminate the penalties the taxpayer faces. However, the taxpayer must make a full and complete disclosure, correct his or her tax mistakes, and follow all other legal instructions and requirements. In particular, the taxpayer will be exempted from the following penalties:

  • failure-to-file penalties
  • failure-to-pay penalties
  • accuracy-related penalties
  • information return penalties
  • FBAR penalties

Under the foreign streamlined voluntary disclosure procedures, relief is also available for failures to make a timely election of income and retirement savings deferrals.

What Must Taxpayers Do to Make a Streamlined Foreign Offshore Disclosure?

Taxpayers living abroad who enter into the Streamlined program are required to submit tax returns for the three most recent tax years. If the tax returns have already been submitted, the taxpayer should submit amended returns. This should be done on IRS Form 1040X even if the original filing did not contain errors, misstatements, or other problems. If the taxpayer has not filed taxes for the tax year he or she should complete a delinquent return. In both cases, all associated informational returns including Forms 3520, 5471, and 8938 should be filed.

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In addition, the taxpayer must certify that his or her failure to file tax or informational returns was not willful in nature. This certification is made under the penalty of perjury and should not be taken lightly. If the IRS finds that your actions were willful when you have certified that they were not, you have just added an additional layer of complexity and consequences to your matter. Therefore, consult with a tax professional before taking any action to correct your taxes.

Experienced CPA Can Fix FBAR Errors and Mistakes

For more than 30 years, CPA Ted Kleinman has provided careful and strategic tax guidance to expatriates and American taxpayers. If you are worried that mistakes with FBAR filings will come back and lead to large penalties, ask about a voluntary streamlined disclosure. However, your window of opportunity is limited. If you come under suspicion before making your disclosure, this relief will not be available.

To schedule a tax consultation with Ted at U.S. Tax Help, please schedule an appointment or contact us online today.