Delinquent FBAR & Tax Returns

Offshore Account Amnesty Program

The IRS began an open-ended Offshore Voluntary Disclosure Program (OVDP) in January 2012. The IRS may end the 2012 program at any time in the future. The IRS is offering taxpayers with undisclosed income from offshore accounts another opportunity to get current with their tax returns. The program offers clear benefits to encourage taxpayers to disclose foreign accounts now rather than risk detection by the IRS and possible criminal prosecution.

Taxpayers who are delinquent on their US tax filings have many compliance options:

1. Delinquent FBAR Submission Procedures
Taxpayers who do not need to use either the OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax, but who:

  • have not filed a required Report of Foreign Bank and Financial Accounts (FBAR),

  • are not under a civil examination or a criminal investigation by the IRS, and

  • have not already been contacted by the IRS about the delinquent FBARs

should file the delinquent FBARs (last 6 years) and include a statement explaining why you are filing the FBARs late.

The IRS will not impose a penalty for the failure to file the delinquent FBARs if you properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.

2. Delinquent International Information Return Submission Procedures
Taxpayers who do not need to use the OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax, but who:

  • have not filed one or more required international information returns,

  • have reasonable cause for not timely filing the information returns,

  • are not under a civil examination or a criminal investigation by the IRS, and

  • have not already been contacted by the IRS about the delinquent information returns

should file the delinquent information returns with a statement of all facts establishing reasonable cause for the failure to file. 

3. Streamlined Filing Compliance Procedures
The streamlined filing compliance procedures are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part. The streamlined procedures are designed to provide to taxpayers in such situations with

  • a streamlined procedure for fling amended or delinquent returns, and

  • terms for resolving their tax and penalty procedure for filing amended or delinquent returns, and

  • terms for resolving their tax and penalty obligations.

The streamlined procedures are available to both U.S. individual taxpayers residing outside the United States and U.S. individual taxpayers residing in the United States. To be eligible for the streamlined procedures, taxpayers must certify that the failure to report all income, pay all tax and submit all required information returns, including FBARs was due to non-willful conduct.  

 

Specific Instructions for the Streamlined Offshore Procedures

Taxpayers who are eligible and willing to use the streamlined offshore program must:

1.For each of the most recent 3 years for which the U.S. tax return due date has passed:

  • if a U.S. tax return has not been filed previously, submit a complete and accurate delinquent tax return, together with the required information returns (Taxpayers residing in the United States may not file delinquent income tax returns using these procedures), or

  • ​if a U.S. tax return has been filed previously, submit a complete and accurate amended tax return, together with the required information returns.

2. Complete and sign a statement certifying (1) that you are eligible for the Streamlined Offshore Procedures; (2) that all required FBARs have now been filed; and (3) that the failure to file tax returns, report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct. 

3. Submit payment of all tax due as reflected on the tax returns and all applicable statutory interest with respect to each of the late payment amounts.  

4. Pay 5% miscellaneous offshore penalty of the highest aggregate value of the taxpayer’s foreign financial assets that are subject to the miscellaneous offshore penalty during the years in the covered tax return period and the covered FBAR period (applies only for taxpayers residing in the United States).

5. For each of the most recent 6 years for which the FBAR due date has passed, file delinquent FBARs and include a statement explaining that the FBARs are being filed as part of the Streamlined Filing Compliance Procedures.  

If you are U.S. taxpayer that is holding financial assets outside the United States and are not in compliance with the required reporting obligations, take action today and contact us for free consultation.