How to Calculate the Title 26 Miscellaneous Offshore Penalty
How to Calculate a Title 26 Miscellaneous Offshore Penalty: In this article, we explain How to Calculate a Title 26 Miscellaneous Offshore Penalty. For U.S. Residents who qualify as non-willful and meet the threshold requirements for filing under the IRS Streamlined Domestic Offshore Procedures, the program carries a 5% penalty. The 5% penalty is in lieu of the other FBAR penalties, which can be pretty tough — even when a person is non-willful. Calculating the Title 26 offshore penalty is more difficult than it appears. This is primarily due to the exceptions, exclusions and limitations involved in calculating the penalty. For example, the RRSP is excluded, as is certain foreign real estate — but other retirement plans may or may not be excluded. We have developed a sample calculation to help you better understand how to calculate the Title 26 Miscellaneous Offshore Penalty.
We explain How to Calculate the Title 26 Miscellaneous Offshore Penalty:
|Form 14654 Penalty Example||How to Calculate||Practice Pointer|
|Step 1: Evaluate your Accounts & Assets||There are many different accounts and assets that may be included in the computation. Two of the most common are assets and accounts involving FATCA (Foreign Account Tax Compliance Act) and FBAR (Report of Foreign Bank and Financial Account Form) *Some assets and accounts may be excluded from the penalty-base.||Be sure your foreign assets and accounts are not excluded from the penalty base|
|Step 2: Compile 12/31 Year-End Balances||Compile the 12/31 balances on your Foreign Accounts, Insurance Policies and other 8938/FBAR qualified accounts for each year within the compliance period.||The use of the December 31st helps avoid double-counting|
|Step 3: Select an annual exchange rate||Determine the proper exchange rate for each year. There are various exchange rates you can use, such as the IRS exchange rates and Department of Treasury exchange rates.||Practice Pointer: Stay consistent with the source of exchange rates you used.|
|Step 4: Aggregate the 12/31 balances||Total the 12/31 balances on your previously unreported Foreign Accounts, Insurance Policies and other 8938/FBAR qualified accounts (Value of Real Estate is not included for the Streamlined Program).||Be sure to only include accounts and assets that comprise the penalty base.|
|Step 5: Select the highest 12/31 aggregate balance||Pick the one-year that has the highest 12/31 balance (not highest max year balance, which is the standard for Traditional Voluntary Disclosure).||The 5% Penalty is not on every year -- just the highest year.|
|Step 6: Multiply the aggregate balance by 5%||Example: Michael's highest year 12/31 aggregate balance in the six (6) year compliance period is 2017. In 2017 his 12/31 balances totaled $2,600,000. His penalty would be $130,000.||Multiple by .05 -- not .50|
We Specialize in Streamlined & Offshore Voluntary Disclosure
Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
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Recent Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
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