Enter the Streamlined Foreign Offshore Program Before 2018?
- 1 Streamlined Foreign Offshore Program
- 2 What is the Benefit?
- 3 Here is an Example
- 4 How Does this Help?
- 5 It can get Confusing…
- 6 The Basics of Reporting Foreign Money
- 7 Who Has to Report?
- 8 Foreign Reporting Summary
- 9 Foreign Income
- 10 Foreign Accounts
- 11 Fines & Penalties
- 12 Customs Holds and Passport Revocation
- 13 Getting Into Compliance
- 14 Streamlined Foreign Offshore Disclosure
- 15 Quiet Disclosure
Should You Enter the Streamlined Foreign Offshore Program Before 2018? The IRS Streamlined Foreign Offshore Procedures are a great way for individuals and estates to get into IRS Tax Compliance and avoid penalties (and possibly even tax). This is true even if you have not filed previous IRS Tax Returns.
Streamlined Foreign Offshore Program
But with Tax Year 2017 nearly over, and 2018 just around the corner — it may benefit you to apply for the IRS Streamlined Foreign Offshore Procedures before April 15, 2018 (or later if you obtain an extension).
What is the Benefit?
While there is no hard and fast rule about the IRS Streamlined Foreign Offshore Procedures, there is a common understanding amongst experienced IRS Offshore Voluntary Disclosure tax attorneys that it is beneficial to not have your most recent tax return as part of the submission package – if at all possible. Unlike Streamlined Domestic Offshore, in the Streamlined Foreign Offshore you can file late original returns as part of the package.
Here is an Example
For example, if a person applied for the Streamlined Program in December 2017, the 2017 tax year is not complete yet — and if you have not yet filed your 2016 tax return, than you are already out-of-compliance for tax year 2016 (Exceptions Apply).
Therefore, if you applied for the Streamlined Foreign Offshore Disclosure Program at the end of December in 2017, you would file tax returns for 2014, 2015, 2016. Even if the returns are all already late, at least they are being filed before the close of the current tax year (2017), and the most recent submission in the package (tax year 2016) is still being filed before 2017 tax year filings is due (Tax Year 2017 tax filing commences in January, 2018 and are due by April, or October if you obtained an extension).
Thereafter, in 2018 you file a timely original tax return for tax year 2017. When the IRS receives the 2017 tax year return, it will be properly filed with all the necessary disclosures. Meanwhile, if the IRS looks into your tax history at all (for example, you received a FATCA Letter that made its way from the foreign bank to the IRS) the IRS will see that for your “prior tax returns” (pre-tax year 2017) you submitted to the streamlined foreign program and the IRS would not have any motivation to audit you, since you already paid the taxes, penalties and interest. Moreover, since your 2017 will be filed timely, you will be in a great position with the IRS.
How Does this Help?
If instead, you did not submit to the Streamlined Foreign Offshore Disclosure Program until 2018 to include tax years 2015, 2016 and 2017 then there are no subsequently filed tax returns on file beyond what you submitted for the streamlined program — and the IRS may be “unsure” if you intend on continuing compliance following your streamlined submission.
Conversely, if you filed a streamlined submission for tax years 2014, 2015, 2016 under the streamlined program — and then made your 2017 return a “clean return” outside of the streamlined submission period, it will further demonstrate that you intend on remaining in tax compliance and may very well reduce the chance of audit (of course, nothing is guaranteed).
It can get Confusing…
Our entire tax practice is limited to IRS Offshore Voluntary Disclosure, such as (OVDP, Streamlined Offshore Disclosure, FATCA and OVDP). Below please find a very basic summary of how international tax law works, followed by a summary of the streamlined foreign offshore disclosure program.
The Basics of Reporting Foreign Money
Golding & Golding is a flat-fee, full-service firm; we are lawyers who assist international clients in reporting their offshore accounts to the IRS. Most recently, many of our clients learned about Foreign Bank Account reporting requirements when they received a FATCA Letter from their Bank, asking them to certify their U.S. Status by submitting either a W-9 or W-8 BEN.
Who Has to Report?
We have represented numerous clients worldwide with issues similar to yours:
– Expats who relocated overseas and did not know they had to report their foreign accounts.
– U.S. Citizens who live overseas and may or may not earn significant income, but have accounts in a foreign country.
– Legal Permanent Residents of the United States who relocate back to a foreign country but are unaware that they are still required to report the foreign accounts.
– Non-Residents who meet the substantial presence test and therefore are required to report foreign bank and other accounts to the US government.
Please do not worry. We can assist you as we have assisted hundreds of clients in over 40 countries disclose upwards of $40 million in a single disclosure.
We are available seven days a week and provide flat-fee and full-service representation to our clients around the world.
Foreign Reporting Summary
These are the most basic rules when it comes to foreign accounts and foreign income:
If you are either a US Citizen, Legal Permanent Resident (aka Green Card holder or recently gave up your Green Card) or foreign resident who meets the substantial presence test, then you are required to report your worldwide income to the IRS. This means that even if you do not have any US-based income, you are still required to report your worldwide income (even if it is the type of income which is not taxed in your home country such as interest and dividend income in most Asian countries). And, if you have enough foreign income to meet the minimum threshold for having to file a US tax return, then you are required to do so even if it is based on your foreign income alone.
If you meet the requirement for being a U.S. “Taxpayer” (even if you do not meet the threshold for having to file a US tax return), you are still required to file an annual FBAR (Report of Foreign Bank and Financial Accounts). The threshold is as follows: if at any time during the year, you have more than $10,000 in foreign accounts (whether the money is in one account or spread over numerous accounts), you are required to file an FBAR.
In addition, if you have significant amounts of money overseas, then you may also have to file additional forms such as an 8938 (FATCA Form) or 8621 (Passive Foreign Investment Company, which includes Foreign Mutual Funds along with as many other passive investments). There are many other forms you may have to file, but we determine those on a case-by-case basis.
Fines & Penalties
Unless you are criminal, chances are the IRS or Department of Justice will not be banging down your door to come drag you to jail. With that said, the fines and penalties can be very steep and depending on your particular circumstances, may include penalties upwards of 100% of the value of your foreign account. If the IRS believes you were willful (aka intentional), then they may launch a criminal investigation against you and the penalties and fines can get much worse from here, including Liens, Levies, Seizures…and worse.
Customs Holds and Passport Revocation
With the implementation of FATCA (Foreign Account Tax Compliance Act), the United States is heavily cracking down on offshore tax evasion and unreported foreign accounts in general. The IRS and US government have the power to both revoke your passport as well as possibly hold you at the airport “customs hold” to question you on the spot (usually outside the presence of your attorney).
Getting Into Compliance
Getting into compliance should be mandatory on your “to-do” list. Even though our firm, Golding & Golding, is based in Newport Beach, we represent clients worldwide. A majority of our clients live overseas in over 40 countries. We have helped numerous clients get into compliance and are regarded as one of the top Offshore Disclosure Law Firms worldwide.
To that end, there are three main methods of compliance:
(1) Streamlined Compliance
This program is for individuals who were unaware of any requirement to file an FBAR and/or report their income on a US tax return. The penalties under the streamlined program are significantly reduced and may possibly be waived depending on whether a person qualifies under the strict definition of foreign resident for offshore disclosure purposes.
This program is mainly for individuals and businesses who were willful, aka were aware they were supposed to report their foreign accounts but intentionally hid or kept the account/income information secret.
(3) Reasonable Cause Statement
This is not a particular program; instead, it is a method for getting to compliance while attempting to avoid any penalty. There are many pros and cons to this method depending on your specific situation, which must be evaluated carefully with your attorney before making a decision.
We provide a reduced fee telephone consultation to all potential clients (excluding CPAs, Lawyers, and/or other Tax Professionals) so that we can answer your questions. All calls are strictly confidential and the information is covered under the attorney-client privilege (even if you decide not to retain our firm).
Streamlined Foreign Offshore Disclosure
What do you do if you reside outside of the United States and recently learned that you’re out of US tax compliance, have no idea what FATCA or FBAR means, and are under the misimpression that you are going to be arrested and hauled off to jail due to irresponsible blogging by inexperienced attorneys and accountants?
If you live overseas and qualify as a foreign resident (reside outside of the United States for at least 330 days in any one of the last three tax years or do not meet the Substantial Presence Test) you may be in for a pleasant surprise.
Even though you may be completely out of US tax and reporting compliance, you may qualify for a penalty waiver, and ALL of your disclosure penalties would be waived. Thus, all you will have to do besides reporting and disclosing the information is pay any outstanding tax liability and interest, if any is due.
*Under the Streamlined Foreign, you also have to amend or file 3 years of tax returns (and 8938s if applicable) as well as 6 years of FBAR statements just as in the Streamlined Domestic program.
Quiet Disclosure (otherwise known as “Silent Disclosure” or “Soft Disclosure”) of your foreign accounts and foreign income on an FBAR or late/amended tax return is a serious violation of U.S. Tax Law, which can subject you to very high fines, penalties and criminal investigation.
A Quiet Disclosure will only Make Matters Worse
In a quiet disclosure, the person does not enter the program but rather simply amends their tax returns to include the unreported foreign income (schedule B), report the foreign accounts (8938 forms) and file FBAR Statements with the Department of the Treasury.
Here’s the problem: If you were originally non-willful (in that you were unaware of the requirement to file an FBAR) but now you went ahead and willfully failed to pay the penalty, you may have bootstrapped your non-willful submission into full-blown tax fraud and tax evasion.
Why? Because you have now willfully evaded US tax, interest and penalties by knowingly filing an untimely FBAR or Amended Tax Return without payment penalty for money you know you earned in the past but had not paid any US tax on.
Click Here to read our article/case study: “Quiet Disclosure Case Study Example – From Submission to IRS Audit…to Jail“
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