By Bethany Bouw, CPA
Picture this, you are sitting at your dining room table and suddenly you realize you missed the Foreign Bank Account Report (FBAR) deadline. Or you remember that you need to tell your accountant about that foreign company you own part of and wonder, “Was I supposed to report anything about this company?” Thankfully, the IRS has provided procedures to follow if this happens to you.
First Things First
- Take a deep breath
- DO NOT jump to quietly file the delinquent forms, hoping the IRS just won’t notice!
- Contact your accountant as soon as possible
- Consider if soliciting advice from a tax attorney might be a good choice (considering materiality and willfulness)
Next – Options, Options, Options
Delinquent FBAR Procedures. This is the easiest option for solving the delinquent FBAR problem. This is only available to those who don’t have unreported and unpaid additional tax, are not under civil exam or criminal investigation by the IRS, AND have not already been contacted by the IRS about the filing. If eligible, you file your FBAR including a statement as to why the FBAR is late. There is also no penalty under this method assuming you meet the eligibility requirements.
Delinquent International Information Return Procedures. This is the easiest option for solving the delinquent international information filing problem. However, it is only available to those who don’t need to file amended returns to report and pay additional taxes, are not under civil exam or criminal investigation by the IRS, have not already been contacted by the IRS about the filing, AND have reasonable cause for not timely filing. If eligible, you file your delinquent informational forms (not the Form 3520 or Form 3520-A) with an amended income tax return and a reasonable cause statement attached to each delinquent filing for which it applies. If you have delinquent Form 3520 or Form 3520-A filings, file those per the form instructions with the reasonable cause statement attached to each delinquent filing for which it applies.
Streamlined Filing Compliance Procedures. This is the option designed for individuals whose omissions were non-willful. Careful consideration should be given to the facts regarding non-willfulness. To be eligible, the IRS must not have initiated a civil exam or criminal investigation. There are two approaches to the streamlined procedures. There are Streamlined Domestic Offshore Procedures (SDOP) and Streamlined Foreign Offshore Procedures (SFOP). In both approaches, the taxpayer files three years of returns and six years of FBARs. The SFOP has no failure to file or failure to pay penalties, no accuracy penalties, no information return penalties, and no FBAR penalties. The SDOP has a miscellaneous offshore penalty of 5% of the maximum balance or value of the foreign financial assets that are subject to the penalty during the period covered. The SDOP penalty is lower than the Offshore Voluntary Disclosure Program (OVDP).
Offshore Voluntary Disclosure Program. This program has gone through several iterations. The current is an open-ended program with higher penalty rates. The IRS can close this program at any time. This is the option for those who have willful omissions and are seeking a way to become compliant instead of risking exposure and potential prosecution. This program generally requires the filing of eight years of amended returns and eight years of FBARs.
Ryan & Wetmore has assisted numerous individuals with their compliance through each of the methods above and has worked closely with tax attorneys as well. We can work together with you and/or your tax attorney to help you reach the resolution you need.
The International Tax Team at Ryan & Wetmore is well-versed in foreign informational filings. For questions or concerns regarding your international accounts and assets, click here to email our foreign tax team. Please be aware that tax issues are complicated and may vary based on the details of your situation. For this reason, an initial phone call is generally required to obtain the facts and address the questions.
Bethany Bouw CPA, is a manager at Ryan & Wetmore and has been with the firm for over eight years. She has experience with offshore voluntary compliance and assisting taxpayers with foreign asset and entity reporting requirements.
Traci Getz CPA, is a partner with Ryan & Wetmore, P.C. Traci has over fifteen years of experience providing accounting, tax, and consulting services to small and medium-sized business owners. She works with clients to understand their accounting and tax issues while specializing in international tax, healthcare, and construction.
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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