Article Summary:

  • How to come into compliance with foreign financial asset reporting
  • Non-willful conduct certification
  • Miscellaneous offshore penalty
  • Possibility of subsequent audit

If you are a U.S. taxpayer who has not reported your foreign financial assets on your tax returns and you can certify that the reporting failure and nonpayment of all tax due related to those assets did not result from willful conduct on your part, you can come into compliance with the IRS by doing the following:

(1) For each of the most recent three years for which the U.S. tax return due date (including extended due dates) has passed, file amended tax returns, together with all required information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, and/or 8621). These three years are referred to as the “covered tax return period”;

(2) For each of the most recent six years for which the FBAR (foreign bank account report) due date has passed, file any delinquent FBAR returns (FinCEN Form 114, previously Form TD F 90-22.1). These six years are referred to as the “covered FBAR period”; and

(3) Pay a 5% miscellaneous offshore penalty plus any tax and interest due on the amended returns. The full amount of the tax, interest, and miscellaneous offshore penalty due in connection with these filings should be remitted with the amended tax returns.

Penalty – The miscellaneous offshore penalty is equal to 5% of the highest aggregate balance/value of your foreign financial assets during the years in the “covered tax return period” and the “covered FBAR period.” For this purpose, the highest aggregate balance/value is determined by aggregating the year-end account balances and year-end asset values of all the foreign financial assets and selecting the highest aggregate balance/value from among those years.

After you have completed the streamlined filing compliance procedures, you will be expected to comply with U.S. law for all future years and file returns according to regular filing procedures.

Returns submitted under the streamlined offshore procedures will not automatically be subject to IRS audit, but they may be selected for audit under the IRS’s audit selection processes applicable to any U.S. tax return. If selected, they will be checked for accuracy and completeness, just as with any other audit. If errors or omissions are discovered, you could be subject to additional civil penalties, and even criminal liability, if appropriate.

This is a simplified overview of the streamlined compliance program; not all taxpayers will qualify. Please call this office for additional details and assistance with bringing you into compliance with your foreign asset reporting requirements.

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