Examples of Offshore Account Reporting Disclosure Submission

Examples of Offshore Account Reporting Disclosures

When a U.S. Person has failed to timely report foreign accounts, assets, investments, and income, they are considered to be non-compliant with the IRS international tax reporting rules. While there are various different foreign account and asset amnesty reporting options, the general term is ‘Offshore Disclosure.’ Depending on whether the person is considered willful or non-willful will impact the different reporting options a Taxpayer has in order to safely get into compliance.

The key issues to consider are:

• • • Was the Taxpayer willful or non-willful?

    • Is there unreported income?

    • Is the reporting limited to the FBAR (and no missed income)?

    • What is the total projected penalty?

Willful vs Non-Willful

The key issue to determine which offshore account reporting option a person qualifies for is whether or not they are willful or non-willful. When a taxpayer is willful, they have several different options available to them, such as Streamlined Procedures, Delinquency Procedures, or Reasonable Cause. When a person was willful (including reckless disregard or willful blindness) they are limited to the IRS Voluntary Disclosure Program.

Common Non-Willful Foreign Account Reporting Situations

Let’s take a look at four (4) common non-willful foreign account reporting scenarios:

Only Missed the FBAR (Non-Willful)

Stan is a US citizen who lives in the United States. He previously lived overseas and still keeps an account with $45,000. The account does not earn any interest. Stan may qualify for the Delinquent FBAR Submission Procedures (DFSP), in which Stan would submit delinquent FBARs with a statement explaining his non-compliance. If he qualifies for DFSP, he may avoid penalties.

Missed the FBAR and Other Forms (Non-Willful)

Kyle is a US Citizen as well and he also maintains a foreign bank account overseas, and even though it does not generate any foreign income, the value exceeds $700,000, and also owns foreign mutual funds. As a result, he would not qualify for the Delinquent FBAR Submission Procedures – but may qualify for the Delinquent International Information Returns Submission Procedures (DIIRSP). Prior to 11/2020, the IRS also provided (usually) automatic penalty waivers, but since the tail-end of 2020, the penalty waiver is no longer ‘guaranteed.’ The IRS Streamlined Procedures may also be an option for this type of fact scenario. 

Missed International Forms and Income (Non-Willful)

This is the most common of the four scenarios.  Kenny is a Lawful Permanent Resident who previously lived overseas. He has several foreign accounts in the various different countries he resided in. He also has a foreign rental property. Presuming Kenny qualifies as non-willful, he would usually submit to the Streamlined Filing Compliance Procedures (SFCP).  The program can be broken further down into Streamlined Domestic Offshore Procedures (SDOP) and Streamlined Foreign Offshore Procedures (SFOP). While Streamlined is one of the more popular options, the Taxpayer may consider making a Reasonable Cause submission as an alternative.

Willfulness and Common Example

When a person is ‘willful,’ they do not qualify for the above-referenced amnesty programs. Instead, they would submit to the IRS Voluntary Disclosure Program (VDP).

Here is a common example of a VDP submission – Cartman is US Citizen who hates paying taxes. He learned about his foreign reporting requirements a few years back but intentionally told his CPA he did not have foreign accounts when he knew he was required to do so.  Once he realized what could happen if he was caught (his foreign banks are all FATCA compliant), he decided he wanted to get into compliance. He determined his best option was to submit to the IRS Voluntary Disclosure Program.

Avoid Quiet Disclosures

With a quiet disclosure, the Taxpayer forgoes submitting to the IRS through one of the approved offshore disclosure/amnesty programs and instead either begins to file forward (without resolving missed filings from prior years) or files prior year missed forms without following proper protocol. The IRS has stated that if they determine that a Taxpayer intentionally sought to avoid penalties by either filing forward or mass filing prior year missed forms, it can lead to significant fines and penalties and even an IRS Special Agent Investigation.

When You Are Ready to Get Into Compliance

Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters. When it comes time to selecting an attorney, one of the most important aspects is to determine whether you want to work with an hourly attorney or a full-service tax/law firm that charges a flat fee for the full submission and post-submission process. Click Here to learn more about why the flat-fee model is the preferred method for Taxpayers across the globe.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.

Contact our firm today for assistance.