Declaring Prior Year Foreign Income to the IRS (2018) – U.S. Tax Amnesty

If you have undeclared foreign income for prior years, which was not properly reported on your US tax return, it is important that you declare the foreign income to the IRS on your U.S. Tax Return before it is too late.

Declaring Prior Year Foreign Income to the IRS

As you delve further into your online research, and learn about foreign and offshore reporting requirements of income, assets, investments, accounts you maintain abroad — you will find that the most important aspect is the income.

Why Is Declaring Foreign Income a Priority?

The reason why declaring foreign income is so important, is because that the unreported foreign income is typically the catalyst for IRS Penalties. In other words, the foreign income aspect of the non-disclosure is the key issue for the IRS in determining whether nondisclosure of assets, investments, or accounts should be subject to a penalty.

Undeclared Foreign Income vs. No Undeclared Foreign Income

For example: If a person has $3 million of foreign accounts overseas, but had no knowledge of the reporting requirement and no unreported income — then typically the person can qualify for (DIRR) which is the Delinquent International Informational Return Submission Procedures. If the person qualifies for DIRR, then the person can usually just file the old informational returns, without any penalty. Obviously, as the amount of undeclared money increases in value the chances of an audit may increase – but from a technical standpoint, if there is no unreported income and the person had no knowledge of the reporting requirement, then a person can avoid penalties.

In sharp contrast:  If a person has $125,000 dollars overseas of unreported accounts, and $8,000 of unreported income, then chances are the person will have to enter one of the approved IRS Offshore Voluntary Disclosure Programs in order to get into compliance (unless they can show reasonable cause, which comes with its own set of risks). And, because the amount of undeclared income exceeds $5000 (and was generated from foreign bank accounts and other investments), the statue limitations extends to six (6) years instead of three – which may mean twice the number of penalties.

Undeclared Foreign Income is High Risk

The reality is, the IRS has made enforcement of offshore and foreign money a key priority. That is not intended to scare you, it is just the truth – but it does not mean you are going to be audited, and does not mean that you are going to be caught. It is just so you understand, that since the IRS is lacking in resources, it must direct those resources towards where it gets the most bang for its buck, and typically that includes Offshore and International Tax Enforcement.

Even if a person was non-willful, FBAR penalties alone can be severe. According to the IRS’ Internal Revenue Manual, the recommended penalty is $10,000 per account per year. That’s right, just by not properly filing your FBARs, if you were found to be non-willful (but could not show reasonable cause), you could be hit with a $60,000 penalty – which is the recommended amount.

Of course, there are mitigating factors which the IRS could use to reduce penalties or even waved them (or increase them), but you have to get a really nice IRS agent on a good day for a complete penalty waiver – unless you proactively enter one of the IRS Offshore Voluntary Disclosure Programs.

Be Proactive with IRS Offshore Disclosure

If on the other hand, you proactively make a representation to the IRS to one of the approved offshore voluntary disclosure programs or an affirmative reasonable cause statement (by making a Reasonable Cause submission vs. using it as a defense in an audit), you may be able to get all penalties waived or significantly reduced down to a total penalty of 5%.

FATCA Reporting Increases Your Risks

The U.S. has entered into FATCA agreements with more than 110 countries, which is nearly double the number of countries of which the IRS is entered into income tax treaties with. Chances are, FATCA is staying – at least for the time being.

Moreover, more than 300,000 Foreign Financial Institutions (FFI) have agreed to report US account holders to the United States/IRS (and some of these Foreign Institutions are countries that have not even signed a FATCA Agreement with the U.S.)

Thus, the chances of getting caught have increased significantly and if it turns out you have both unreported accounts, assets, investments along with undeclared income – you could be subject to a stiff penalty.

Therefore, you may consider entering IRS voluntary disclosure.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding 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.

Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.

*Please beware of copycat tax and law firms misleading the public about their credentials and experience.

Less than 1% of Tax Attorneys Nationwide Are Certified Specialists

Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.

Recent Golding & Golding 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 all 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

Interested in Learning More about Golding & Golding?

No matter where in the world you reside, our international tax team can get you IRS offshore compliant. 

Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.

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