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Title 26 Miscellaneous Offshore Penalty Calculation
Title 26 Miscellaneous Offshore Penalty: The Title 26 Miscellaneous Offshore Penalty of 5% is a reduced penalty offered to applicants of the IRS Streamlined Domestic Offshore Procedures (SDOP).
Title 26 Miscellaneous Offshore Penalty: How to Calculate
The Title 26 Miscellaneous Offshore Penalty is significantly lower than the FBAR and other offshore penalties a foreign account holder would otherwise suffer if they were audited. The goal is to leverage a smaller penalty (now) against a potentially more devastating penalty(s) later.
For U.S. resident taxpayers considering entering SDOP, it is important to pre-analyze what the penalty will be so that the client has a good understanding of how much they will be out-of-pocket.
Sample Title 26 Miscellaneous Offshore Penalty Calculation
Step 1: Evaluate your Accounts & Assets
There are many different accounts and assets that may be included in the computation. Two of the most common are assets and accounts involving FATCA (Foreign Account Tax Compliance Act) and FBAR (Report of Foreign Bank and Financial Account Form) *Some assets and accounts may be excluded from the penalty-base.
Practice Pointer
Be sure your foreign assets and accounts are not excluded from the penalty base before includin them in the penalty base.
Step 2: Compile 12/31 Year-End Balances
Compile the 12/31 balances on your Foreign Accounts, Insurance Policies and other 8938/FBAR qualified accounts for each year within the compliance period.
Practice Pointer
The use of the December 31st date helps avoid double-counting.
Step 3: Select an annual exchange rate
Determine the proper exchange rate for each year. There are various exchange rates you can use, such as the IRS exchange rates and Department of Treasury exchange rates.
Practice Pointer
Stay consistent with the source of exchange rates you used.
Step 4: Aggregate the 12/31 balances
Total the 12/31 balances on your previously unreported Foreign Accounts, Insurance Policies and other 8938/FBAR qualified accounts (Value of Real Estate is not included for the Streamlined Program).
Practice Pointer
Be sure to only include accounts and assets that comprise the penalty base.
Step 5: Select the highest 12/31 aggregate balance
Pick the one-year that has the highest 12/31 balance (not highest max year balance, which is the standard for Traditional Voluntary Disclosure).
Practice Pointer
The 5% Penalty is not on every year — just the highest year.
Step 6: Multiply the aggregate balance by 5%
Example: Michael’s highest year 12/31 aggregate balance in the six (6) year compliance period is 2017. In 2017 his 12/31 balances totaled $2,600,000. His penalty would be $130,000.
Practice Pointer
Multiple by .05 — not .50.
Can I Negotiate the Title 26 Miscellaneous Offshore Penalty?
No, unfortunately when a person enters the streamlined domestic offshore procedures, they are subject to a 5% penalty. The IRS agents are not authorized to negotiate the penalty, but is important to note that there are various assets which may be excluded from the computation.
What are the Fees for Hiring a Streamlined Filing Offshore Attorney?
Learn why experienced Streamlined Offshore Disclosure Lawyers always charge flat-fee for tax and legal representation — and avoid using Kovel Letters.
About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS Offshore Compliance and Voluntary Disclosure.
Contact our firm today for assistance.