Because US laws differ from most other countries, many do not realize that those who are considered to be United States taxpayers are taxed on worldwide income; they must report offshore accounts and income, regardless of where they are currently residing. They must also file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1.)
On March 13, 2018, the Internal Revenue Service announced it will begin to ramp down its 2014 Offshore Voluntary Disclosure Program (OVDP) and close the program on Sept. 28, 2018. This program allows U.S. taxpayers with undisclosed foreign financial assets a process to avoid more extensive penalties, and have the IRS rule that it will not pursue criminal penalties. These procedures involve IRS review of an application and a reduced one-time penalty in lieu of other penalties.
As a separate program, the Streamlined Filing Compliance Procedures will remain in place. However, the IRS has warned that it may end the Streamlined Filing Compliance procedures at some point. The Streamlined Filing Compliance Procedures allows for persons to come into compliance without IRS advance review or a formal IRS determination. It imposes for those residing overseas, a zero in-lieu FBAR penalty (but including regular income tax penalties on amended returns) and a ten percent in-lieu FBAR penalty for persons who have any substantial presence in the United States – i.e., meeting a US residency requirement for the prior three years. For example, the Streamlined programs have worked well for taxpayers who overlooked accounts or simple rental income overseas due to inadvertence or misunderstanding of the laws – i.e. non-willful conduct. The IRS may eject taxpayers after-the-fact who it considers to have failed to comply or who are found to have been willful as to their conduct.
The Streamlined program involves filing amended returns for prior-years (generally three) and six years of prior year FBAR statements in accordance with IRS guidelines. There are other requirements involving required disclosures, filing within the program and providing a reasonable explanation of non-willful conduct. Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.
We are encouraging individuals to come into compliance and not wait for any program to end not only because it limits their options but also because they are more likely to be contacted by the IRS. The IRS expects to ramp up its resources to undertake more criminal investigation of non-reporters. Once a taxpayer is contacted by the IRS, no voluntary compliance program is available. In addition, as a criminal investigation, even if the matter is ultimately resolved as a civil penalty/compliance case, the penalties are steep: they may exceed the value of foreign assets held.
Lastly, we have had great success with these voluntary programs. If you have any questions regarding OVDR or the Streamlined programs, you may contact Cameron Hess at (916) 273-1810 or one of our other tax partners to discuss these programs.
