Americans Abroad Can Safely Get IRS Offshore Compliant
Explore Expat Foreign Account Amnesty Options (Taxes & FBAR)
For individuals who live outside of the United states but are still considered U.S. persons for tax purposes, such as U.S. citizens, lawful permanent residents, and foreign nationals who meet the substantial presence test it can be a big surprise to learn that they are still required to file U.S. tax returns and report their foreign accounts, assets, and investments to the U.S. government each year. The problem with being out of compliance with foreign account and asset reporting is that the penalties for noncompliance can be severe. With that said, the IRS has also developed various amnesty programs to help taxpayers safely get into compliance. In fact, for taxpayers who live outside of the United States, there is a special program where they can typically avoid all fines and penalties if they meet the non-willful and foreign residence requirements. Let’s look at a few key facts taxpayers abroad should keep in mind about late foreign account reporting.
How Many Years Have You Not Filed US Taxes or Reported FBAR
The number of years that a person has been out of tax compliance does not, in and of itself, determine if they are willful or non-willful. For example, a taxpayer may have known they were required to file but did not file for a few years (intentionally), or they could be an accidental American that had no idea they were required to file, and it wasn’t until they were in their 30s that they learned that they were a US person with a tax filing requirement (unintentional). Therefore, just because a taxpayer may not have filed taxes for several years does not mean they are willful.
Do You Pay Taxes in a Foreign Country?
Taxpayers who earn income outside of the United States and also pay foreign taxes may qualify for a foreign tax credit to reduce or eliminate the U.S. tax liability on the income. Foreign tax credits may be used for both earned income, such as employment, and passive income, such as interest and dividends. In addition, some taxpayers with certain foreign earned income and housing expenses may qualify for the foreign earned income exclusion (FEIE) as well (although foreign tax credits and foreign earned income exclusion cannot be used on the same dollar of income although it can be used on the same category of income such as taxpayers who are high income earners in a foreign country).
Do You Have Foreign Accounts or Assets?
Taxpayers with ownership of foreign accounts, assets, and investments may be required to file certain international information reporting forms in addition to their tax returns, such as the FBAR, Form 8938, 8621, or 3520/3520-A. Even some taxpayers who do not have to file a tax return because they may be below the income requirement may still have to file these foreign information returns when they have assets that meet the threshold requirements for reporting. Noting that there are many different forms and depending on the categories of assets, taxpayers may have to file several different forms in the same year, it may have to duplicate the reporting of a single asset across several different forms.
Getting Into IRS Tax and Offshore Reporting Compliance
The IRS offers several different offshore amnesty programs that taxpayers may qualify for to get into compliance for the previous year on reported income accounts and assets. In fact, some non-willful taxpayers who meet the foreign residency requirements may qualify for the streamlined foreign offshore procedures (SFOP), and they will not have to pay any penalty on the unreported accounts and assets.
*Not all foreign residents will qualify for SFOP. Whether they are a U.S. citizen, a lawful permanent resident, or a visa holder who meets the substantial presence test will dictate the parameters of qualifying for the streamlined foreign offshore procedures — but for taxpayers who do qualify, it is a great way to get into compliance.
Avoid IRS Quiet Disclosures
The quiet disclosure is when a taxpayer just files past returns or otherwise starts filing their current return without getting into compliance for prior years’ non-compliance. The IRS has made it known that if they discover taxpayers are seeking to circumvent the potential penalties under the disclosure programs or not properly reporting their foreign accounts assets and income through the approved mechanisms for doing so, they may be subject to fines and penalties, and these fines and penalties would be much worse than a taxpayer who went through one of the approved programs.
Late Filing Penalties May be Reduced or Avoided
For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.
Current Year vs Prior Year Non-Compliance
Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.
Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties.
Need Help Finding an Experienced Offshore Tax Attorney?
When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.
Contact our firm today for assistance.