You have three main options when it comes to offshore disclosure:
- Submit the delinquent information returns, which is known as a quiet disclosure.
- Use the Streamlined Filing Compliance Procedures.
- Use the new Offshore Disclosure Rules, which have replaced to old Offshore Voluntary Disclosure Program (OVDP).
The best choice for your situation will depend on many factors, including whether you reported foreign income on your tax return and if your conduct may be considered willful or non-willful.
Delinquent Information Return Submission
Sending in your delinquent FBAR is the simplest disclosure method, but it can only be used if you properly reported your foreign income and paid taxes on it. You also can’t use this option is the IRS has contacted you about an audit, even if the audit is unrelated to your foreign accounts.
The Streamlined Procedures offer a middle-ground disclosure solution. You can use the Streamlined Procedures even if you don’t report foreign income on your tax return or pay taxes on it.
You must certify that your failure to file FBARs and report foreign income was non-willful to use the Streamlined Procedures. If the IRS determines that your conduct was in fact willful, you will not be protected from criminal prosecution.
You should discuss the issue of willfulness with a tax attorney. Attorney-client privilege will protect statements you make to your lawyer, so tell them all the details they need to give an opinion on the issue of willfulness.
The Streamlined Procedures require you pay taxes on the unreported foreign income and pay a 5% penalty, but the penalty is waived for taxpayers living outside of the United States.
Offshore Disclosure Rules
The new Offshore Disclosure Rules still provide assurance that you won’t face criminal prosecution for your failure to file FBARs. However, the penalty structure and other requirements have changed significantly from those used in the OVDP.
You may have to pay civil fraud penalties and willful FBAR penalties, which can total up to $100,000 or 50% of the aggregate account balance, whichever is greater. Other penalties may also be assessed.
There is some flexibility to argue for lower penalties or to have the penalties only assessed for one year in the six year disclosure period. Consult a tax attorney to discuss the potential penalties you may be charged under the new Offshore Disclosure Rules and whether you should consider a different offshore disclosure alternative.
Get help with FBAR and offshore disclosure matters by calling The Gartzman Law Firm at (770) 939-7710. We can listen to your concerns and help you find the best tax resolution strategy for your case.