- 1 Failed to Report Foreign Accounts
- 2 Willful or Non-Willful Failure to Report Foreign Accounts
- 3 What Foreign Account Forms are Required
- 4 Potential Foreign Account Penalties for Failure to Report
- 5 How Many Years of Offshore Account Noncompliance
- 6 Foreign Account Penalty Mitigation Strategies
- 7 Can I Just Start Reporting Foreign Accounts This Year Instead?
- 8 Our International Tax Lawyers Represent Clients Worldwide
Failed to Report Foreign Accounts
Failed to Report Foreign Accounts: When a US Person failed to report foreign accounts, there are various potential IRS consequences – some worse than others. For some foreign account holders who were non-willful, the penalties are usually limited — and many violations may be avoided altogether with penalty waivers. For other Taxpayers who are willful, the penalties can be significantly higher. But, oftentimes the violation does not result in any criminal consequences (criminal willfulness is not the same as civil willfulness). Once a person realizes they may be noncompliant with FBAR reporting and other international information reporting noncompliance, they will want to consider submitting to one of the offshore disclosure programs to safely get into compliance. Let’s review the basics of what happens if a US Person fails to report foreign accounts to the IRS and FinCEN:
Willful or Non-Willful Failure to Report Foreign Accounts
The key issue when it comes to a failure to report foreign accounts and assets is whether or not the Taxpayer was willful vs non-willful. When a Taxpayer was willful, they may be subject to more extensive fines and penalties. There is no bright-line test to determine whether someone was willful vs non-willful — and it is based on a totality of the circumstance analysis.
What Foreign Account Forms are Required
The specific type of overseas accounts, assets and investments of the US person will helps determine what specific types of international information reporting forms are necessary. Some forms are more complicated than others – and sometimes multiple forms are required to report the same asset – such as a foreign mutual fund.
Potential Foreign Account Penalties for Failure to Report
The type and extent of penalties for failure to report foreign accounts will vary based on the type of unreported assets and number of years of noncompliance. Some forms such as the FBAR carry higher potential penalties than other forms, such as the Form 8621.
How Many Years of Offshore Account Noncompliance
How long a Taxpayer has been out of compliance for failure to report foreign accounts helps determine the level of noncompliance. For example, if a non-willful person was out of compliance for a year or two for a single foreign bank account — the noncompliance will usually not be that bad. Conversely, if someone is noncompliant involving several categories of foreign assets and multiple years of noncompliance — there is more risk for potential penalties — and the disclosure strategies will be different than a person with a single unreported account.
Foreign Account Penalty Mitigation Strategies
Foreign Account Amnesty Programs are programs developed by the Internal Revenue Service to assist Taxpayers who are already out of compliance for non-reporting.
Some of the more common programs, include:
- Voluntary Disclosure Program (VDP or “New” OVDP)
- Streamlined Domestic Offshore Procedures
- Streamlined Foreign Offshore Procedures
- Delinquency Procedures
- Reasonable Cause
Can I Just Start Reporting Foreign Accounts This Year Instead?
Not unless the current year is the first-year the account holder had an FBAR Reporting requirement. Otherwise, if they had a prior year reporting requirement, but only begin to start filing in the current year (filing forward) it is illegal. In the world of offshore disclosure, this is referred to as a Quiet Disclosure.
The IRS has warned taxpayers that if they get caught in a Quiet Disclosure situation, it may lead to willful penalties and even a criminal investigation by the IRS Special Agents.
Our International Tax Lawyers Represent Clients Worldwide
Our International Tax Lawyer team specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm for assistance.