When Do You Need to Disclose Your Offshore Assets to IRS?
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Disclosing Your Offshore Assets to IRS?
When a US Taxpayer realizes that they are out of compliance for reporting offshore assets to the Internal Revenue Service and FinCEN (Financial Crimes Enforcement Network), it can be a very overwhelming feeling. The Internet is littered with fear-mongering tax professionals who aim to make taxpayers believe that they are automatically going to be hauled off to prison and hit with millions of dollars in fines, simply because they did not disclose their offshore assets. In fact, most of the offshore asset reporting programs for FBAR and FATCA are geared toward non-willful taxpayers – because the majority of non-compliant taxpayers are non-willful. And, even if a taxpayer is willful, that does not mean that they have committed any criminal act. That is because criminal willfulness and civil willfulness have two different standards. Let’s go through three (3) important reasons why taxpayers may want to consider disclosing offshore assets to the IRS.
Do Not Let Non-Willfulness Turn into Willfulness
For many taxpayers who were non-willful, they have a variety of different programs available to them in order to safely get into offshore compliance for their foreign assets. One key problem that can become an issue for taxpayers is that once a taxpayer knows of their offshore asset filing requirements but does not take action and continues to file returns (or neglect to file returns) without disclosing the assets — this may be considered a form of willfulness. As a result, the taxpayer may have taken what could have been a standard non-willful submission and inadvertently turned it into willful noncompliance. This can be worsened by making a quiet disclosure.
Streamlined Procedures May End at Any Time
One of the most common programs non-willful taxpayers use to get into IRS compliance is the Streamlined Filing Compliance Procedures. The streamlined procedures can be further broken down into the Streamlined Domestic and Streamlined Foreign Offshore Procedures. Currently, the Streamlined Domestic Procedures still offers a 5% penalty — which is the same as when the program started in 2014. In addition, the Streamlined Foreign Offshore Program still waives all offshore penalties. Over the past few years, there have been many rumors swirling that the IRS will soon terminate this program. Now with the recent closure of OVDP (2018) and stricter requirements for Delinquency Procedures (2020), Taxpayers who may qualify for the Streamlined program but are on the fence, may not want to lose out on the opportunity to submit.
*There are other alternative options to offshore disclosure, including: Reasonable Cause, DIIRSP, and DFSP.
Offshore Voluntary Disclosure (New VDP) is Getting More Strict
With the closure of OVDP also came the expansion of the traditional voluntary disclosure program (VDP) — to include offshore assets and accounts. Currently, the penalty is generally going to be 50% of the highest year’s maximum undisclosed account/asset balances — and increased scrutiny when seeking a reduction of the penalty. Years ago, the penalty was significantly less but it continues to rise — and the IRS is becoming much more strict with refusing to negotiate down from the 50% penalty. As a result, for taxpayers who are willful and do not qualify for one of the non-willful programs, the new VDP program is becoming more and more complicated and requires more information for taxpayers to meet the disclosure requirements. Thus, taxpayers may want to take advantage of the current version of the VDP — before it possibly gets even more strict.
Disclosing Overseas Assets Can Bring Peace of Mind
While no taxpayer wants to pay any penalty to the Internal Revenue Service if they can avoid it, sometimes it is simply unavoidable — depending on the taxpayer’s facts and circumstances. For taxpayers considering offshore asset disclosure, history has shown that offshore asset penalties tend to get worse over time and programs get discontinued — so taxpayers who are considering disclosure may want to consider getting into compliance now as opposed to the future.
About Our International Tax Law Firm
Golding & Golding specializes exclusively in IRS offshore and domestic voluntary disclosure and tax amnesty, including how to disclose offshore assets to the IRS.
Contact our firm for assistance.