Quiet Disclosure vs Streamlined: The comparison of Quiet Disclosure vs Streamlined is comparing an approved IRS method for offshore compliance (Streamlined) as opposed to an illegal disclosure (quiet disclosure). In recent years, the Internal Revenue Service has sought to aggressively enforce foreign accounts compliance and unreported foreign income rules. When a taxpayer has not properly reported their offshore accounts, assets, investments or income, they may become subject to offshore penalties, such as FBAR Penalties. In order to avoid these penalties, the IRS has developed several offshore and FBAR amnesty programs — collectively referred to as offshore voluntary disclosure.
Quiet Disclosure vs Streamlined
What is Quiet Disclosure vs. Streamlined, and what is the difference?
With a Quiet Disclosure, the Taxpayer files prior year Tax Returns and Informational Reporting Forms (or just begins filing forward) without going through the proper amnesty programs channels.
Example 1 – Unintentional Quiet Disclosure
Joe recently learned about FBAR and FATCA and realized that he had not filed any of these forms in the past. Joe is about the file his most recent return and realizes that he’s also required to include an FBAR and Form 8938. Joe includes these forms with his current tax return in order to get it filed timely (because Joe’s unaware that he qualifies for an automatic extension using IRS Form 8938).
Thereafter, after nights of research, Joe realizes that he should have been filing these forms for many years prior and that by simply filing the current year forms, he may be at much higher risk for Fines, Penalties, or worse than if he performs a proper disclosure. Therefore, Joe contacts an experienced Offshore Voluntary Disclosure Attorney and they come to the conclusion that Joe is non-willful.
*In this particular situation, Joe may still qualify for the streamlined program because the facts show that he was non-willful.
Example 2 – Intentional Quiet Disclosure
Jane recently had a change in her U.S. Tax Status and moved from an H-1B Visa holder to a Legal Permanent Resident. All the while, Jane was under the misunderstanding that as an H-1B she was not required to file and report her foreign income or account information.
After speaking with a qualified Offshore Voluntary Disclosure Lawyer, Jane comes to the sobering realization that she was required to file these forms the entire time. Jane is nervous, because after years of waiting — she finally received her green card. Jane does not want to lose her green card (which she probably wouldn’t anyway if she filed under proper disclosure procedures) and realizes that the chances are low that the IRS would ever detect her if she was to file her prior FBARs and FATCA firm 8938 “quietly”.
Therefore, Jane goes back and files six years of FBARs and three years of amended tax returns to include her FATCA Form 8938 – and Form 3520 for multiple gift she received from her parents in order to purchase a home.
**In the second example, Jane performed a quiet disclosure. She knowingly and intentionally filed prior forms in order to avoid the penalties associated with either filing streamlined program or reasonable cause. She could be subject to an IRS Criminal Investigation.
Quiet Disclosure Resources
Here are some resources for you:
- General Article about IRS Disclosures and Why they are Bad
- Specific Article on FBAR Quiet Disclosures
- 10 Reasons Not to File a Quiet Disclosure with the IRS
In the alternative, Streamlined or IRS Streamlined is one of the more common and legal methods for foreign account and asset disclosure.
The Streamlined Procedures can be broken further down into two (2) programs:
- Streamlined Domestic Offshore Procedures (SDOP)
- Streamlined Foreign Offshore Procedures (SFOP)
Streamlined Domestic Procedures (U.S. Residents)
Streamlined Filing Compliance Procedures for US persons residing in the United States (or do not meet the technical “Foreign Resident Test”) is referred to as the Streamlined Domestic Offshore Procedures for U.S. Residents.
Typically, there are three (3) main eligibility requirements that a U.S. Taxpayer must meet in order to qualify and become eligible for the Streamlined Domestic Offshore Procedures.
The requirements include:
- Non-Willful Certification Statement using IRS Form 14654
- Not Qualify as a Foreign Resident
- Filed Timely Tax Returns
Streamlined Domestic Resources:
- Summary on eligibility and submission requirements for the Streamlined Domestic Offshore Procedures.
- Summary on how to calculate the 5% Streamlined Penalty
Streamlined Foreign Procedures (Non-U.S. Residents)
Streamlined Filing Compliance Procedures for US persons residing outside the United States is referred to as the Streamlined Foreign Offshore Procedures.
Streamlined Foreign Offshore Procedures (SFOP) are a highly cost-effective method of quickly getting you into IRS (Internal Revenue Service) or DOT (Department of Treasury) compliance before it is too late! It allows individuals to come into IRS Tax and Reporting Compliance, without having to pay any penalties.
The requirements include:
- Qualify as Non-Willful;
- Meet the 330-Day Foreign Residence Test/Non U.S. Person; and
- You do not have to have filed all prior year tax returns.
Streamlined Domestic Resources:
Streamlined Filing Compliance Procedures Ending?
Technically, there is no specific end-date yet for the Streamlined Filing Compliance Procedures. The program can end at any time, although the Internal Revenue Service will probably provide some notice first, as they did with OVDP.
The only program that terminated is the OVDP – and even then, there is an alternative version of the program in which you can still disclose offshore assets and accounts if you were a willful, or otherwise do not qualify for this streamline program or reasonable cause.
While there is no specific end date for the Streamlined Domestic or Foreign Offshore Procedures, the IRS did make it known that the program would not last forever.
What is the Streamlined Filing Procedures Deadline?
The deadline for submission may vary, based on the applicant’s specific tax situation, and which program they are applying to. This is a complicated issue, which you should discuss in detail with your experienced board-certified tax law specialist lawyer.
What Forms Must be Reported under Both Programs?
The following is a list of common forms which many people were never aware they had to report, but which the failure to report may lead to extensive fines and penalties:
Reporting Foreign Accounts (FBAR)
If you are a U.S. Person, it does not matter whether or not you have to file a US tax return to determine if you have to file an FBAR. The threshold question is whether you have an annual aggregate total of foreign/offshore bank accounts, financial accounts, retirement accounts, etc. that when combined, exceed $10,000. If so, you are required to file the FBAR Form and report all of the accounts.
FATCA Form (8938)
FATCA is the Foreign Account Tax Compliance Act. For individuals, it requires reporting of financial accounts and certain specified foreign assets (ownership in businesses, life insurance, etc.). There are different threshold requirements, depending on whether a person is Married Filing Jointly (MFJ) or Married Filing Separate (MFS)/Single, and whether a person resides in the United States or outside of the United States.
Foreign Gift Form (3520)
If you receive a gift or inheritance from a foreign person that exceeds $100,000 either in a single transaction, or a series of transactions over a year, you are required to report the gift on this form. You have the file this form, even if you are not required to file a tax return (although it is normally filed at the same time as your tax return).
Foreign Corporation or Foreign Partnership (5471 or 8865)
The rules are somewhat different for these two forms, but essentially the same (with the 5471 being much more commonplace for U.S. investors). If you own at least 10% ownership in either type of business, you required to report the information on either a form 5471 or 8865. Both of these forms require comprehensive disclosure requirements, involving balance statements, liabilities, assets, etc. Moreover, the forms need to be filed annually, even if a person does not have to otherwise file a tax return
Passive Foreign Investment Company (PFIC)
One of the most vilified type of financial assets/investments (from the U.S. Government’s perspective) is the infamous PFIC. A PFIC is a Passive Foreign Investment Company. The reason the United States penalized this type of investment is because it cannot oversee the growth of the investment and income it generates. In other words, if a U.S. person invests overseas in a Foreign Mutual Fund or Foreign Holding Company — the assets grows and generates income outside of IRS and U.S. Government income rules and regulations.
Foreign Trust (3520-A)
A Foreign Trust is another type of Foreign Investment that is frowned upon by the IRS. From the IRS’ perspective, the only purpose behind a Foreign Trust is to illegally avoid US reporting and income tax requirements by moving money offshore. While there are many people who may operate illegally in this fashion, there are various legitimate reasons why you would be a trustee or beneficiary of a Foreign Trust (Your cool grandma really loves you and placed $5 million in trust for you overseas). Form 3520-A is a relatively complex form, which must be filed annually by anybody that owns a foreign trust.
Foreign Real Estate Income
Even if you are earning rental income from property that is located outside of the United States, you still must report the income on your U.S. taxes (even it is exempt from tax in the foreign country). Remember, United States taxes individuals on their worldwide income. Therefore, the income you are earning from your rental property(s) must also be included on your US tax return.
A few nice benefits of reporting the income is that the United States allows depreciation of the structure – which many foreign countries do not allow. Moreover, you can take the same types of deductions and expenses that you otherwise take the property was located in the United States.
Golding & Golding (Board-Certified Tax Law Specialist)
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.
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We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants and Financial Professionals worldwide.
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.