- 1 Filing Late Taxes and FBAR For Citizens or Residents
- 2 Delinquent FBAR Submission Procedures (DFSP)
- 3 Delinquent International Information Return Submission Procedures (DIIRSP)
- 4 Streamlined Domestic Offshore Procedures (SDOP)
- 5 Streamlined Foreign Offshore Procedures (SFOP)
- 6 IRS Voluntary Disclosure Program (VDP) for Delinquent FBAR & FATCA
- 7 Reasonable Cause for Delinquent FBAR and FATCA
- 8 Late Filing Penalties May be Reduced or Avoided
- 9 Current Year vs. Prior Year Non-Compliance
- 10 Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
- 11 Need Help Finding an Experienced Offshore Tax Attorney?
- 12 Golding & Golding: About Our International Tax Law Firm
Filing Late Taxes and FBAR For Citizens or Residents
With October 15th now behind us, it is common for some taxpayers to realize for the first time (or as their annual reminder) that they are out of compliance for filing tax returns and international information reporting forms such as the FBAR and Form 8938. Depending on whether it is the first year that the taxpayer was required to file or whether they have multiple years of unfiled or incorrect tax returns and reporting forms, luckily the Internal Revenue Service has developed various amnesty programs that can assist taxpayers with safely getting into compliance. Depending on the specific facts and circumstances of each taxpayer will determine which program they qualify for. While at first glance, some amnesty programs may seem better than others, typically each program has its own set of pros and cons that the taxpayer should carefully assess before making a proactive submission to the Internal Revenue Service. Let’s look at some of the more common programs that taxpayers may apply for.
Delinquent FBAR Submission Procedures (DFSP)
When a Taxpayer does not have to make any substantive changes to their tax return involving unreported income, they may qualify for the Delinquent FBAR Submission Procedures. This program is typically limited to Taxpayers who have no unreported income and are not required to file other delinquent forms in addition to the FBAR. For Taxpayers who qualify for these submission procedures, there is generally no penalty applied for prior-year noncompliance.
Delinquent International Information Return Submission Procedures (DIIRSP)
Up until November of 2020, Taxpayers who had no unreported income (but missed filing international information reporting forms) could sidestep any offshore penalties by filing delinquent forms under DIIRSP. In November of 2020, the IRS rules changed and the IRS does not guarantee that filing delinquent forms will circumvent penalties — although with the right set of facts and circumstances, the Taxpayer may avoid penalties by showing reasonable cause (see further below).
Streamlined Domestic Offshore Procedures (SDOP)
The Streamlined Domestic Offshore Procedures are IRS procedures designed for Taxpayers who do not qualify as foreign residents, are non-willful, and filed their original tax returns timely. Under these procedures, a Taxpayer can opt to pay a 5% Title 26 Miscellaneous Offshore Penalty in lieu of all the other delinquent FBAR and FATCA penalties.
Streamlined Foreign Offshore Procedures (SFOP)
The Streamlined Foreign Offshore Procedures are probably the best of all the offshore tax programs for Taxpayers who qualify as eligible. This is because if a Taxpayer qualifies as a foreign person and is non-willful, they can avoid all offshore penalties under these procedures. In addition, Taxpayers can file original tax returns.
IRS Voluntary Disclosure Program (VDP) for Delinquent FBAR & FATCA
The IRS Voluntary Disclosure Program (VDP) has been in existence for many years. From 2009 to 2018, there was an offshoot of the VDP program — which was referred to as the Offshore Voluntary Disclosure Program (OVDP) — and was primarily for Taxpayers with undisclosed foreign income and assets. In 2018, the IRS closed this program — but also expanded the traditional voluntary disclosure program on matters involving foreign and offshore income and asset disclosures.
Under the prior version of OVDP for delinquent FBAR, FATCA, etc. — even non-willful Taxpayers would submit to the program in order to both receive a closing letter and almost always avoid an audit (unless they opted-out). The new version of the VDP program is geared primarily for Taxpayers who are willful or are unable to certify under penalty of perjury that they are non-willful. It is still a great program in which Taxpayers can almost always avoid criminal prosecution — and it rarely if ever would have any impact on a person’s immigration status (unless the Taxpayer was also “criminally” willful and the government pursued that criminality against the Taxpayer, which is extremely rare).
Reasonable Cause for Delinquent FBAR and FATCA
In general, a Taxpayer cannot be subject to penalties for missing the filing of delinquent FBAR and other international information reporting forms if they can show reasonable cause and not willful neglect. This is not a program per se but rather an alternative submission package in which the Taxpayer seeks to avoid or minimize penalties without formally going through the programs listed above — while also avoiding making a quiet disclosure.
Late Filing Penalties May be Reduced or Avoided
For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.
Current Year vs. Prior Year Non-Compliance
Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.
Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties.
Need Help Finding an Experienced Offshore Tax Attorney?
When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.
Contact our firm today for assistance.