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The Streamlined Offshore Voluntary Disclosure Process

How Does the Streamlined Offshore Disclosure/FBAR Filing Process Work?

If you qualify for the Streamlined Offshore Voluntary Disclosure Process, you should seek assistance and take advantage of the program.  The miscellaneous offshore penalty is 5% of the aggregate value of the foreign bank accounts and financial assets as compared with a 27.5% of the aggregate value of foreign bank accounts and financial assets penalty with the regular Offshore Voluntary Disclosure Process.

  • File delinquent returns, if any;
  • File delinquent FBARs – FinCen Form 114, Report of Foreign Bank and Financial Accounts (can be filed online) for the previous six (6) years
  • Using an Amended Return for prior years, if your filings were incorrect, check Yes in both boxes on the 1040 Schedule B, Part III, Foreign Accounts and Trusts, Questions 7a, that ask if you have foreign accounts and then fill in the name of the Country in Question 7b, attaching a schedule – “see attached” – if there are multiple countries in which you have foreign accounts;
  • For accounts containing $50,000 USD ($100K for joint returns) on the last day of the Tax Year or $75,000 USD ($150K for joint returns) at any time during the Tax Year, for which any **income, gains, losses, deductions, credits, gross distributions or proceeds would be reportable, also file Form 8938, Statement of Specified Foreign Financial Assets with any current, delinquent or amended tax returns.  The reporting thresholds ($50K last day of Tax Year/$75K any day of Tax Year) applies to the aggregate account values.
  • On the top of each 1040X, Amended U.S. Individual Tax Return, include at the top of the first page of the amended tax return "Streamlined Domestic Offshore" written in red to indicate that the returns are being submitted under these procedures. 
  • Complete and attach a “Certificate of Non-willfullness” to the amended tax returns -- http://www.davidneufeldlaw.com/uploads/2/8/5/1/2851373/form-14654-streamlined_certification-insideus.pdf
  • 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.  Your taxpayer identification number must be included on your check.  You may receive a balance due notice or a refund if the tax or interest is not calculated correctly.
  • Submit payment of the 5% Penalty – Title 26 miscellaneous offshore penalty. 
  • The documents listed above, together with the payments described above, must be sent in paper form (electronic submissions will not be accepted) to:

Internal Revenue Service

3651 South I-H 35 Stop 6063 AUSC

Attn:  Streamlined Domestic Offshore

Austin, TX 78741

Who Must File an FBAR?

United States persons are required to file an FBAR if:

  1. the United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
  2. the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

United States person includes U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.

FBAR Must Be Filed Even if There is No Taxable Income

A lot of the confusion surrounding FBARs results from the fact that many accountants at H&R Block, Jackson Hewitt and small accounting firms generally, are looking for items of taxable income when interviewing taxpayers, and may not think to ask about foreign accounts, which are a relative rarity.  If an individual is asked if they have taxable income, the fact they have a foreign account that does not produce interest may not come to mind or may be dismissed as irrelevant – after all, it does not produce any income, so it must not be relevant.

This is the problem.  The law requires foreign bank accounts and other financial accounts to be reported even if they do not produce taxable income.

Purpose of Streamlined Process – Delinquent/Unfiled FBARs

The purpose of the Streamlined Offshore Voluntary Disclosure procedure is to allow individuals whose conduct in nonfiling was not willful to report foreign financial assets and pay any tax due with respect to such assets.  The IRS has recognized that many individuals who have foreign ties do not know and did not know about the Foreign Bank Account Reporting (“FBAR”) filing requirements.  The goal of the IRS is to secure full compliance and full payment, not to punish individuals who failed to file through ignorance of the law.

Certification of Non-Willfulness

Complete and sign a statement on the Certification by U.S. Person Residing in the U.S. certifying:  (1) that you are eligible for the Streamlined Domestic Offshore Procedures; (2) that all required FBARs have now been filed (see instruction 9 below); (3) that the failure to report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct; and (4) that the miscellaneous offshore penalty amount is accurate (see instruction 5 below).  You must maintain your foreign financial asset information supporting the self-certified miscellaneous offshore penalty computation and be prepared to provide it upon request.  You must submit an original signed statement and attach copies of the statement to each tax return and information return being submitted through these procedures.  You should not attach copies of the statement to FBARs.  Failure to submit this statement, or submission of an incomplete or otherwise deficient statement, will result in returns being processed in the normal course without the benefit of the favorable terms of these procedures.  

Treatment Under the Streamlined Process

Tax returns submitted under either the Streamlined Foreign Offshore Procedures are processed like any other return submitted to the IRS. 

Returns submitted under the Streamlined Domestic Offshore Procedures will not be subject to IRS audit automatically, but they may be selected for audit under the existing audit selection processes applicable to any U. S. tax return

After a taxpayer has completed the streamlined filing compliance procedures, he or she will be expected to comply with U.S. law for all future years and file returns according to regular filing procedures.  

Eligibility When a Previous “Quiet Disclosure” Was Made

What if you have filed Amended Tax Returns already reporting the Foreign Accounts and any relevant taxable income?  You can still file under the streamlined process, but if any tax penalty has already been assessed, whether you realize it or not, it will stand.  This is just another reason to file delinquent FBARs and do it as quickly as possible.

Penalties Chart: “5% Penalty As Opposed to 27.5% Penalty Under OVDP”

FBAR Violation

Civil Penalties

Criminal Penalties

Comments

Reasonable Cause for not filing

Up to $500 per violation.

N/A

31 U.S.C.
§ 5321(a)(6)(A)
31 C.F.R. 103.57(h)

Streamlined Program

5 percent – U.S. Residents
0 percent – Citizens Overseas

None

Lowest tax cost for any previous Voluntary Disclosure Program.

Non-Willful Violation in not filing FBAR’s

Up to $10,000 for each violation.

N/A

31 U.S.C. §
5321(a)(5)(B)

Pattern of Negligent Activity in not filing FBAR’s

With respect to any such violation, not more than $50,000.

N/A

31 U.S.C. §
5321(a)(6)(B)

WILLFUL FAILURE
TO FILE FBAR

Up to the greater of $100,000, or 50 percent of the value in the account. Penalties can be assessed for each separate year. A 75 percent penalty is another available tool.

Up to $250,000 or 5 years or both

31 U.S.C. § 5321(a)(5)(C)
31 U.S.C. § 5322(a) for civil; and 31 C.F.R. § 103.59(b)
for criminal.

Willful failure to file FBAR while violating certain other laws (e.g. money laundering)

Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation.

Up to $500,000 or 10 years or both

31 U.S.C. § 5321(5)(C); 31 U.S.C. § 5322(b) and 31 C.F.R. § 103.59(c) for criminal violation.

Willfully Filing AFalse FBAR

Up to the greater of $100,000, or 75 percent of the amount in the account at the time of the violation.

$10,000 or 5 years or both

18 U.S.C. § 1001
31 C.F.R. § 103.59(d) for criminal.

Civil and Criminal Penalties may be imposed together. 31 U.S.C. § 5321(d).