Probate, Estate Transfers & IRS Voluntary Disclosure Basics (2018)

Probate, Estate Transfers & IRS Voluntary Disclosure Basics (2018) by Golding & Golding, A PLC

Probate, Estate Transfers & IRS Voluntary Disclosure Basics (2018) by Golding & Golding, A PLC

When somebody loses a loved one, the very last thing they want to deal with is anything related to the IRS, especially confusing tax situations involving offshore and foreign accounts or asserts.

Unfortunately, from the IRS’ perspective, the IRS does not necessarily let things go just because a person passed away.

Why? Because oftentimes the IRS has the right to go after the estate of the decedent.

Decedent’s Accounts & Assets

It is not uncommon that after a person has passed, the beneficiaries learn that the decedent had unreported foreign bank accounts, financial accounts, assets and other investments that were never reported. And suddenly, a simple last tax return has become infinitely more complicated and overwhelming.

This discovery usually occurs when it is time for the beneficiaries to prepare the tax returns for the estate and/or the decedent, and someone realizes that the decedent was not in tax compliance regarding the reporting of offshore money.

You Have to Be Careful

Sometimes a client will come to us after speaking with an inexperienced attorney and relay to us that they were told they did not have to file anything with the IRS, since the money was not their money at the time the person was alive.

While this may be true regarding the money now belonging to the beneficiaries (e.g., the beneficiaries themselves are not out of compliance) as to the decedent, the beneficiaries will usually have to file certain documents with the IRS regarding the decedent, including a final tax return.

When a person files a tax return on behalf of the decedent who has unreported foreign money, they must disclose the information in the tax return, and other informational returns if required, such as an FBAR, form 3520, form 5471 coming Form 8621, form 8865, etc.

Reporting Just Going Forward?

A person cannot just begin filing returns in the current year and not go back and fix the issues during the prior years. Why? This is considered a Quiet Disclosure to the extent that the person is intentionally omitting the filing of prior returns in order to bring the person compliant.

Filing a Quiet Disclosure can get a person in some serious trouble, and it is never recommended.

The Issue May Be Easily Resolved

Even though dealing with the Internal Revenue Service can seem overwhelming, in all reality individuals who inherit money from a decedent typically have a few non-aggressive methods they can use to get into compliance. Usually the beneficiaries will submit either a Streamlined Domestic Offshore Procedure, Streamline Foreign Offshore Procedure, or a Reasonable Cause Statement explaining the facts and circumstances.

Typically, the IRS does not aggressively pursue recipients of inheritances, especially during the first year they received the inheritance – and the beneficiaries themselves have not made any intentional misrepresentations or omissions to the IRS.

If the Decedent Was Willful…

If you learn from the prior CPA or other tax professional that the decedent was willful, it is very important to speak with an experienced Offshore Disclosure Attorney.

Since the decedent is no longer here to defend himself or herself, or explain what they were thinking during the noncompliance, it is very important to evaluate the facts and circumstances carefully before making a proactive representation to the IRS that somebody who is no longer with us, acted willfully.

By submitting to OVDP, you are thereafter prevented from going Streamlined; OVDP is a major undertaking with significant penalties.

In addition, since the person has passed, an opt-out maybe impossible.

What if I Do Nothing?

If you do not do anything, then after the next year’s filing has passed and you have intentionally omitted filing the necessary information, you now may have made yourself willful instead of non-willful. 

You will be prevented from submitting a Reasonable Cause Statement or Streamlined Submission, and the IRS has the right to penalize you significant amounts of money depending on the number of unreported accounts, assets, investments, income.

Golding & Golding, A PLC

We have successfully represented clients in more than 1000 streamlined and voluntary disclosure submissions nationwide, and in over 70-different countries.

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.