May 22, 2015
IRS Streamlined Domestic Offshore Amnesty Procedure, and Relief for Delinquent FBARs, and Delinquent US International Information Returns
In the last International Tax Alert, we described the IRS Streamlined Foreign Offshore Procedure (SFOP). The SFOP is an IRS amnesty program that permits certain US citizens and green card holders living outside the US, to be completely forgiven US federal penalties for underpayment of tax, or failure to file certain US international information returns such as the FBAR (“Report on Foreign Accounts” - now FinCen Form 114).
But the IRS also has three other options for delinquent US citizens and residents to “get legal” with the IRS on US tax and international reporting matters, without having to enter the rigorous OVDP (Offshore Voluntary Disclosure Program) which has severe penalties.
The first option, the SDOP (Streamlined Domestic Offshore Procedure”) is similar to the SFOP mentioned above. But unlike the SFOP it is available to individuals who live in the US. Under the SDOP, all FBAR penalties, accuracy related penalties and international information return penalties will be forgiven in return for a one–time penalty of 5% of the largest aggregate balance you had in your non-US financial accounts during the most recent 6 year period covered by the SDOP. The SDOP is also available to individuals who belatedly filed a series of “quiet disclosure” tax returns and FBARs when they became aware the IRS was on the hunt for non-compliant taxpayers.
To be eligible for this option you must have 1) previously filed a US tax return (if required) for the most recent 3 years for which the due date has passed and 2) failed to report gross income from a non-US financial asset and pay tax, and may have failed to file an FBAR and/or one or more international information returns with respect to the non-US financial asset. You must certify that your noncompliance was due to non-willful conduct.
The second option applies to individuals whose only delinquent act was the failure to file an FBAR (“Report on Foreign Accounts” - now Form FinCen 114). If you follow the IRS submission requirements for this option you will not be subject to any penalty for failure to file the FBARs.
To be eligible for this option, you must have no unreported income from those foreign accounts and you must not be under examination or investigation by the IRS or have been contacted about the delinquent FBARs.
The third option applies to individuals whose noncompliance resulted from failure to file one or more international information returns – for example, Forms 3520, 5471, 926, etc. If you follow the IRS submission procedures for this option you will not automatically be subject to audit on those Forms.
To be eligible you must attach a “reasonable cause” statement to each information return, and you must not be under examination or investigation the IRS or have been contacted about the delinquent information returns. Penalties may be imposed if the IRS does accept your explanation of “reasonable cause”.
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