- 1 Delinquent International Information Returns & the IRS
- 2 Understanding how International Informational Return Submission Procedures Work
- 3 What is the Benefit of Delinquency Procedures?
- 4 How to Qualify for the Procedures
- 5 How do the Delinquency Procedures Work?
- 6 Unreported Income or You Do not Qualify for Delinquency?
- 7 Golding & Golding: About our Firm
Delinquent International Information Returns & the IRS
Delinquent International Information Return Submission Procedures: The Delinquent International Information Returns Submission Procedures can be deceivingly complex. Some taxpayers may qualify for the IRS Delinquent International Informational Return Submission Procedures and avoid offshore fines and penalties.
The delinquency procedures are an alternative to the Streamlined Filing Procedures & Voluntary Disclosure. It is generally reserved for non-willful taxpayers who have unreported offshore accounts, assets, or investments — and do not require traditional offshore disclosure — but still want to avoid the Internal Revenue Service’s aggressive international penalty enforcement tactics.
The IRS requires the Taxpayer meet 4 elements:
- have not filed one or more required international information returns,
- have reasonable cause for not timely filing the information returns,
- are not under a civil examination or a criminal investigation by the IRS, and
- have not already been contacted by the IRS about the delinquent information returns
If you are seeking counsel, you should retain a Board-Certified Tax Lawyer Specialist to best represent you.
A summary of the Delinquent International Information Return Submission Procedures:
What is a Delinquent FBAR?
A Delinquent FBAR is an FBAR (FinCEN 114 aka Report of Foreign Bank and Financial Account Form) that is either filed late, or not filed at all.
Do I Need to File the FBAR Every Year?
You do need to file the FBAR in any year you meet the threshold requirements for filing the FBAR.
What Happens if you Forget to File the FBAR?
You can be subject to excessive fines an penalties. FBAR penalties, include: Civil Penalties, Criminal Penalties, Willful Penalties and Non-Willful Penalties.
What if You Have Not Filed one or More Required International Information Returns?
If you have not filed one or more required international information returns, such as a 5471, 3520-A, or 8865, the IRS may penalize you extensively for not being in “IRS Offshore Compliance.”
Understanding how International Informational Return Submission Procedures Work
The following is a breakdown of the procedures.
Informational Returns were never filed, or filed incomplete.
The returns that are being filed involve International Income (aka Foreign Income, or Income from Overseas, Abroad or Offshore)
The applicant did not file an “Informational Return” such as a Form 5471 (Foreign Corporation) or Form 8865 (Foreign Partnership). These are just two examples of International Informational Returns.
These are the procedures/process for “submitting” the delinquent informational returns to the IRS in an attempt to obtain a Penalty Waiver.
What is the Benefit of Delinquency Procedures?
The delinquent international informational return procedures are designed to help safely bring people into compliance without an “offshore penalty.” IRS International Informational Returns typically include documents, including:
- 3520 (Gifts and Foreign Trust Distributions)
- 5471 (Foreign Corporations)
- 8621 (Passive Foreign Investment Companies)
- 8865 (Foreign Partnerships)
- FBAR and FATCA Form 8938
How to Qualify for the Procedures
For some Taxpayers, they may have unreported foreign assets, accounts or investments that should have been disclosed to the IRS but do not otherwise need to file for traditional OVDP (Offshore Voluntary Disclosure Program) or the Streamlined Filing Compliance Procedures. Alternatively, they may qualify for the Delinquency Procedures and avoid any penalties.
*You should speak with an experienced Offshore Voluntary Disclosure Program Lawyer to determine whether your submission should be made under OVDP, the Streamlined Program, or other Amnesty program.
Delinquent International Information Return
Unlike the traditional Offshore Voluntary Disclosure Program (OVDP) or the Streamlined Filing Compliance Procedures aka “Streamlined Program” (SFCP, SFOP or SDOP), in which applicants typically have unreported income — there is a specific program for individuals with no unreported foreign income and a relatively basic submission package (and can also show reasonable cause)
No Change in Tax Liability
When it comes to Offshore Voluntary Disclosure, the main catalyst for the IRS issuing penalties is because of the unreported income. In other words, under most circumstances the IRS is not going after individuals who have reported all of their foreign income, but maybe were unaware there were certain forms they had to file in addition to reporting the income.
While it is a very common for individuals to have unreported foreign accounts and/or assets (along with unreported income) – it is less common to have undeclared accounts or assets and no change in U.S. Tax Liability.
No Income vs. No Tax Due
This is a very important distinction: In order to qualify for this program, a person can have no change in U.S. tax liability.
If a person has unreported income resulting in a change in tax liability (even if the person has foreign tax credits to offset it), there are still other alternatives to try to avoid any offshore penalties. Namely, this is done by making a voluntary submission via a Reasonable Cause submission or Streamlined Foreign Offshore Procedure submission, but those are options you should speak with in detail with an Experienced Offshore Voluntary Disclosure Attorney before making any proactive representation to the IRS.
How do the Delinquency Procedures Work?
There are prerequisites to qualify for the Delinquent International Information Return Submission Procedures.
First, there must be no need for a Streamlined or OVDP submission. In other words, no unreported income or other complex tax scenario.
As provided by the IRS: Taxpayers who do not need to use the OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax, but who:
– have not filed one or more required international information returns,
– have reasonable cause for not timely filing the information returns,
– are not under a civil examination or a criminal investigation by the IRS, and
– have not already been contacted by the IRS about the delinquent information returns
should file the delinquent information returns with a statement of all facts establishing reasonable cause for the failure to file.
Prepare a Reasonable Cause Statement
As further provided by the IRS: As part of the reasonable cause statement, taxpayers must also certify that any entity for which the information returns are being filed was not engaged in tax evasion. If a reasonable cause statement is not attached to each delinquent information return filed, penalties may be assessed in accordance with existing procedures.
– All delinquent international information returns other than Forms 3520 and 3520-A should be attached to an amended return and filed according to the applicable instructions for the amended return.
– All delinquent Forms 3520 and 3520-A should be filed according to the applicable instructions for those forms.
– A reasonable cause statement must be attached to each delinquent information return filed for which reasonable cause is being requested.
Information returns filed with amended returns will not be automatically subject to audit but may be selected for audit through the existing audit selection processes that are in place for any tax or information returns.
Unreported Income or You Do not Qualify for Delinquency?
You still have options, but you would submit directly to one of the specific Offshore Voluntary Disclosure Programs.
Golding & Golding: About our Firm
We specialize exclusively in international tax, and specifically IRS offshore disclosure.
We have successfully represented clients in more than 1,000 streamlined and voluntary offshore disclosure submissions nationwide and in over 70-different countries. We have represented thousands of individuals and businesses with international tax problems.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
- Learn more about the Board-Certified Tax Lawyer Specialist credential
- Learn more about the Enrolled Agent credential
- Learn more about Golding & Golding’s Case Accomplishments
- Learn more about Golding & Golding Testimonials from prior clients
*Beware of less experienced copycat firms misleading the public about the streamlined procedures and IRS offshore disclosure.
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 the following credentials/experience:
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
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.