The IRS’ focus on offshore enforcement efforts and related disclosure programs has raised awareness among many U.S. citizens about their tax filing and information reporting obligations.
Situations of taxpayers with offshore compliance issues vary widely given the complexity of this area of tax law. Taxpayers that recently learned of these tax requirements should also be advised of the many options that are available, outside of the normal filing process, to help them get current with their tax obligations.
A number of the common situations and potential solutions are outlined below.
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Situation
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Compliance Option
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| Taxpayers who have properly reported all taxable income but recently learned that he/she should have been filing FBARs in prior years to report a personal foreign bank account or to report signature authority over bank accounts owned by an employer. |
Taxpayers who reported, and paid tax on, all their taxable income for prior years but did not file FBARs, should file the delinquent FBAR reports according to the instructions (send to Department of Treasury, Post Office Box 32621, Detroit, MI 48232-0621) and attach a statement explaining why the reports are filed late.The IRS will not impose a penalty for the failure to file the delinquent FBARs if there are no underreported tax liabilities and you have not previously been contacted regarding an income tax examination or a request for delinquent returns.
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| Taxpayers who only have certain delinquent information returns, but no tax due. | A taxpayer who has failed to file tax information returns, such as Form 5471 for controlled foreign corporations (CFCs) or Form 3520 for foreign trusts but who has reported, and paid tax on, all their taxable income with respect to all transactions related to the CFCs or foreign trusts, should file delinquent information returns with the appropriate service center according to the instructions for the form and attach a statement explaining why the information returns are filed late. (The Form 5471 should be submitted with an amended return showing no change to income or tax liability.)The IRS will not impose a penalty for the failure to file the delinquent Forms 5471 and 3250 if there are no underreported tax liabilities and you have not previously been contacted regarding an income tax examination or a request for delinquent returns. |
| Non-resident U.S. taxpayers with delinquent returns with low risk factors (including tax owed less than $1,500/year). | Filing Compliance Procedures for Non-Resident U.S. TaxpayersNon-resident U.S. taxpayers should file delinquent tax returns, including delinquent information returns, for the past three years; delinquent FBARs for the past six years; and additional required information regarding compliance risk. Payment of any federal tax and interest due must accompany the submission. |
| Taxpayers with undisclosed foreign accounts and unreported income. Taxpayers seeking protection from criminal prosecution. |
Offshore Voluntary Disclosure Program The Offshore Voluntary Disclosure Program (OVDP) offers a civil settlement structure in which taxpayers pay an offshore penalty in lieu of a number of other penalties that may be assessed in cases of offshore noncompliance. The OVDP also offers protection from criminal prosecution. In order to participate in the OVDP, taxpayers must first request acceptance into the program. Once they have been preliminarily accepted, taxpayers must submit certain information including eight years of amended tax returns, FBARs, and information returns as well as information about their offshore accounts. In addition, taxpayers must submit full payment of the tax and interest due, and certain penalty amounts. Taxpayers who have entered OVDP who disagree with the application of the offshore penalty given the facts and circumstances of their case may elect to opt out of the civil settlement structure of the program. In such situations, the IRS will determine if penalty mitigation is appropriate. |
1 comment on “Options Available for US Taxpayers With Offshore Accounts and/or Entities!”
This is a much better explanation which is nicely structured, but it only talks about foreign accounts and fails to mention Americans living abroad who have local accounts where they live. There should be a section stating that individuals do not have to report their local accounts since the F in FBAR applies to “foreign” and not local.
It also doesn’t mention if those who renounced have to file FBARs for those years where they were still Americans. For example, when an American renounces, do they still have to file FBAR for the portion of the year where they were still American? FBAR documentation states that FBAR filing is only done by American citizens. For example, I filed FBAR for 2011 but not for 2012 since I renounced at the end of 2012 and was thus no longer a US citizen in 2013.
OVDP is known for being only for tax cheats, meaning should only enter OVDP if one intentionally cheated on taxes. Your description makes it sound like a person should join OVDP if they later learned that they were supposed to be taxed. Yet, since OVDP is only for tax cheats and not those who made innocent mistakes, it seems that your description could incorrectly lure the innocent into OVDP.
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