If you have unreported foreign income in addition to unreported foreign account information returns (FBARs, etc.), it will limit your offshore disclosure options. You will need to amend your tax returns along with submitting any delinquent information returns and pay back taxes, penalties, and interest.
No Quiet Disclosures
Quiet disclosures are generally unavailable if you have foreign income that you failed to report. If you try to use a quiet disclosure, it could lead to an IRS civil examination or other consequences.
Fortunately, you have other offshore disclosure options to choose from.
Streamlined Procedures
You can use the Streamlined Procedures to amend your tax returns and submit your delinquent FBARs and other information returns. This may be your best option if your noncompliance was not willful.
However, you must have filed a tax return (if you had a filing requirement) for each of the three most recent tax years. If you failed to file a tax return for one of these years, you won’t qualify to use the Streamlined Procedures.
If you do qualify, you’ll need to pay a 5% miscellaneous offshore penalty along with your back taxes, penalties, and interest. This penalty is paid for taxpayers who live overseas.
You also only need to amend three years of tax years, but you may need to submit up to six years of FBARs.
New Offshore Disclosure Rules
The new offshore disclosure rules are also an option if you have unreported foreign income. In most cases, your disclosure period will be limited to six years.
As mentioned above, there may be some reasons to use the new offshore disclosure rules even when your conduct was non-willful. You could then argue that non-willful FBAR penalties are more appropriate than willful FBAR penalties, and that accuracy-related penalties should be imposed instead of the civil tax fraud penalty.
If your conduct was willful, you still have the option to argue for lesser penalties. IRS mitigation guidelines give the examiner some discretion to assess lower penalties when certain conditions are met.
Consult a tax resolution attorney to discuss your offshore disclosure options and the consequences of failing to report your foreign-source income.
Get help with IRS foreign bank account problems by calling The Gartzman Law Firm at (770) 939-7710. We can listen to your concerns and help you find the best offshore disclosure strategy for your case.