IRS Streamlined 5% Penalty Example (Board-Certified Tax Specialist)

IRS Streamlined 5% Penalty Example (Board-Certified Tax Specialist) - Golding & Golding

IRS Streamlined 5% Penalty Example (Board-Certified Tax Specialist) – Golding & Golding

IRS Streamlined 5% Penalty Example (Board-Certified Tax Specialist)

If you are considering entering the IRS Streamlined Program, then it is important that you understand how to calculate the penalties. 

IRS Streamlined 5% Penalty Calculation

The IRS Streamlined Domestic 5% Penalty is based on the highest year-end balance of certain unreported FBAR and FATCA assets that fall within the compliance period.

Golding & Golding have prepared a sample calculation for preparing the Certification Form 14454 5% streamlined filing compliance procedure penalty works.

2019 IRS Streamlined Domestic Offshore Procedures (How to Apply)

If you are seeking more general information about the Streamlined Domestic Program (there is no penalty for the Streamlined Foreign Program), we have another article that summarizes whether you are eligibile for the 2019 IRS Streamlined Domestic Offshore Procedures and How to Apply.

Golding & Golding, Board Certified Tax Law Specialist

We have successfully represented clients in more than 1000 streamlined and voluntary disclosure submissions nationwide, and in over 70-different countries. We offer clients flat-fee, full-service representation for both tax and legal representation — including post-submission representation.

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

IRS Streamlined Domestic Offshore 5% Penalty Example

The Streamlined Program requires the applicant to amend and pay outstanding tax liability for the last three (3) years, to include unreported foreign income and unreported foreign accounts, assets & investments that were not previously reported on a U.S Tax Return.

Form 14654 Penalty ExampleHow to CalculatePractice Pointer
Step 1: Evaluate your Accounts & AssetsThere are many different accounts and assets that may be included in the computation. Two of the most common are assets and accounts involving FATCA  (Foreign Account Tax Compliance Act) and FBAR (Report of Foreign Bank and Financial Account Form) *Some assets and accounts may be excluded from the penalty-base.Be sure your foreign assets and accounts are not excluded from the penalty base
Step 2: Compile 12/31 Year-End BalancesCompile the 12/31 balances on your Foreign Accounts, Insurance Policies and other 8938/FBAR qualified accounts for each year within the compliance period.The use of the December 31st helps avoid double-counting
Step 3: Select an annual exchange rateDetermine the proper exchange rate for each year. There are various exchange rates you can use, such as the IRS exchange rates and Department of Treasury exchange rates.Practice Pointer: Stay consistent with the source of exchange rates you used.
Step 4: Aggregate the 12/31 balancesTotal the 12/31 balances on your previously unreported Foreign Accounts, Insurance Policies and other 8938/FBAR qualified accounts (Value of Real Estate is not included for the Streamlined Program).Be sure to only include accounts and assets that comprise the penalty base.
Step 5: Select the highest 12/31 aggregate balancePick the one-year that has the highest 12/31 balance (not highest max year balance, which is the standard for Traditional Voluntary Disclosure).The 5% Penalty is not on every year -- just the highest year.
Step 6: Multiply the aggregate balance by 5%Example: Michael's highest year 12/31 aggregate balance in the six (6) year compliance period is 2017. In 2017 his 12/31 balances totaled $2,600,000. His penalty would be $130,000.Multiple by .05 -- not .50

Offshore Penalty Avoidance – What’s at Stake?

The idea behind going streamlined, is to voluntarily pay a “5% Streamlined Domestic Penalty” up-front, to avoid a potentially much larger penalty in the future.

Streamlined Domestic Penalty Avoidance

Here is a brief list of the penalties:

IRS FormsWhat is the Purpose of the FormGolding & Golding IRS Penalty Resource
FBAR (FinCEN 114)Penalties Range: Civil FBAR, Non-Willful FBAR, Willful FBAR, Criminal FBARFBAR Penalties
Form 3520Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts: 3520 Penalties
Form 3520-AAnnual Information Return of Foreign Trust With a U.S. Owner 3520-A Penalties
Form 5471Information Return of U.S. Persons With Respect to Certain Foreign CorporationsForm 5471 Penalties
Form 5472Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business Form  5472 Penalties
Form 8621 

Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund

Form 8621 Penalties
Form 8938Statement of Specified Foreign Financial AssetsForm 8938 Penalties
Form 8865Return of U.S. Persons With Respect to Certain Foreign PartnershipForm 8865 Penalties

Golding and Golding, Board-Certified Tax Law Specialist

Golding and Golding, Board-Certified Tax Law Specialist

Golding & Golding: Our international tax lawyers practice exclusively in the area of IRS Offshore & Voluntary Disclosure. We represent clients in 70+ different countries. Managing Partner Sean M. Golding is a Board-Certified Tax Law Specialist Attorney (a designation earned by < 1% of attorneys nationwide.). He leads a full-service offshore disclosure & tax law firm. Sean and his team have represented thousands of clients nationwide & worldwide in all aspects of IRS offshore & voluntary disclosure and compliance during his 20-year career as an Attorney.

Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.
Golding and Golding, Board-Certified Tax Law Specialist