Form 14654 is the main form required when a person submits an IRS Streamlined Domestic Offshore Disclosure.
When the modified Streamlined Offshore Disclosure Program was introduced back in July 2014, it was a sigh of relief for many individuals who have foreign accounts, assets or income that they were not aware they were required to report — and were non-willful.
Certification by U.S. Person Residing in the U.S.
The Certification by U.S. Person Residing in the U.S. (Form 14654) is deceivingly complex. Depending on the nature of the offshore submission, the number of accounts, and which potential assets maybe excluded or exempted, preparing the 14654 form can become a time-consuming undertaking. It is important for the submission to be as timely and accurate as possible.
The form can be broken down into various subsections:
Certification Statement (Part I)
The IRS certification form begins with an introduction/certification:
“I am providing amended income tax returns, including all required information returns, for each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed.
I previously filed original tax returns for these years. The tax and interest I owe for each year are as follows”
This is merely an acknowledgment by the taxpayer that they missed some income in their original returns. It also presumes that the original returns were filed (which is not required for the Form 14653)
3-Years of Tax Liability
Next the Taxpayer must provide a summary of the taxes due, including:
- Tax Year
- Amount of Tax Due
Assets Subject to Penalty
The assets refer to the assets of the Taxpayer that are subject to the 5% penalty.
Noting, that some assets, such as personal Real Estate investments are not included. Meanwhile other assets such as the Canadian RRSP is included on the FBAR and Form 8938 but NOT computed as part of the penalty.
How to Compute the Penalty
We have prepared our own summary and example of Title 26 Miscellaneous Offshore Penalty calculation.
5% Penalty Limitation
The IRS offers a single year 5% penalty in lieu of all the other FBAR, FATCA and other offshore penalties that a Taxpayer may be subject to.
In consideration of the Internal Revenue Service’s agreement not to assert other penalties with respect to my failure to report foreign financial assets as required on FBARs or Forms 8938 or my failure to report income from foreign financial assets, I consent to the immediate assessment and collection of a Title 26 miscellaneous offshore penalty for the most recent of the three tax years for which I am providing amended income tax returns.
I waive all defenses against and restrictions on the assessment and collection of the miscellaneous offshore penalty, including any defense based on the expiration of the period of limitations on assessment or collection.
I waive the right to seek a refund or abatement of the miscellaneous offshore penalty.
I agree to retain all records (including, but not limited to, account statements) related to my assets subject to the 5% miscellaneous offshore penalty until six years from the date of this certification.
I also agree to retain all records related to my income and assets during the period covered by my amended income tax returns until three years from the date of this certification. Upon request, I agree to provide all such records to the Internal Revenue Service.
My failure to report all income, pay all tax, and submit all required information returns, including FBARs, was due to non-willful conduct. I understand that non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.
I acknowledge the possibility that amended income tax returns I am submitting under the Streamlined Domestic Offshore Procedures may report income for tax years beyond the three-year assessment limitations period under I.R.C. § 6501(a). Other assessment limitations periods in I.R.C. § 6501 may allow the Internal Revenue Service to assess and collect tax.
If I seek a refund for any tax or interest paid for the omitted income that I am reporting on my amended income tax returns because I feel that my payments were made beyond the assessment limitations period, I understand that I will forfeit the favorable terms of the Streamlined Procedures.
I recognize that if the Internal Revenue Service receives or discovers evidence of willfulness, fraud, or criminal conduct, it may open an examination or investigation that could lead to civil fraud penalties, FBAR penalties, information return penalties, or even referral to Criminal Investigation.
Non-Willful Certification Statement
The IRS requires the Taxpayer to submit his or her own statement under penalty of perjury. This is the most important part of the submission.
As provided by the IRS:
You must provide specific facts on this form or on a signed attachment explaining your failure to report all income, pay all tax, and submit all required information returns, including FBARs.
Any submission that does not contain a narrative statement of facts will be considered incomplete and will not qualify for the streamlined penalty relief.
How to Write the Certification Statement
We have prepared nearly 1000 Streamlined Submission since the program was introduced in 2014.
The form is much more complicated than first meets the eye AND it must be signed under penalty of perjury.
As further provided by the IRS:
Provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Include the whole story including favorable and unfavorable facts.
Specific reasons, whether favorable or unfavorable to you, should include your personal background, financial background, and anything else you believe is relevant to your failure to report all income, pay all tax, and submit all required information returns, including FBARs.
Additionally, explain the source of funds in all of your foreign financial accounts/assets. For example, explain whether you inherited the account/asset, whether you opened it while residing in a foreign country, or whether you had a business reason to open or use it. And explain your contacts with the account/asset including withdrawals, deposits, and investment/ management decisions.
Provide a complete story about your foreign financial account/asset.
If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm today for assistance.