Is IRS Offshore Disclosure Right For You? (Common Examples)

Is IRS Offshore Disclosure Right For You?

Each year, Taxpayers who are considered U.S. Persons for tax purposes may be required to report foreign accounts, assets, investments, and income to the Internal Revenue Service and FinCEN on multiple different international information reporting forms (such as FBAR, FATCA, Form 3520, and Form 8621). Unfortunately, many Taxpayers do not become aware of their requirement to report foreign accounts and assets until several years after their reporting would have been required. For Taxpayers who are out of compliance, the IRS has been aggressively assessing fines and penalties for non-compliance. However, the Internal Revenue Service has also developed various offshore amnesty programs to assist Taxpayers in safely getting into compliance with prior years’ unreported accounts, assets, income, etc. At Golding & Golding, we are one of the only international tax and law firms worldwide specializing exclusively in offshore disclosure (and expatriation). Let’s look at some common examples of Taxpayers we represent with IRS offshore disclosure (VDP, Streamlined Procedures, Delinquency Procedures, and Reasonable Cause) and expatriation nationwide and in over 85 different countries.

Unaware of the Foreign Account/Income Requirements

• • • Example:  Harriet is a recent Lawful Permanent Resident who previously lived and worked overseas and has various accounts abroad. She is currently a W-2 employee in the United States and uses TurboTax because she thought her tax returns were relatively straightforward. It was only recently for the first time when she was at an expat group meeting that she learned she should have been reporting all of her foreign accounts, assets, and income to the U.S. government. Harriet has several different options available to her to get into compliance and she should not have much issue getting up to date with her filings.

Non-U.S. Citizens with Foreign Accounts and/or Income

• • • Example: Jeffrey is a Lawful Permanent Resident, and his wife Kimberly is living in the U.S. on an H-1B visa (she meets the substantial presence test). Jeffrey and Kimberly have several foreign accounts and assets overseas, but because they are not U.S. citizens, they incorrectly thought they were not required to report this information to the U.S. government. Since technically they are U.S. persons for tax purposes, they are still required to report their foreign accounts, assets, and income to the U.S. government and therefore they should consider one of the offshore amnesty programs to safely get into compliance.

Deceased Spouse with Foreign Accounts

• • • Example: Adam is a U.S. Person who had several foreign accounts and was unaware that he was required to report these accounts to the U.S. government. He had a CPA who knew about the foreign accounts, but never informed Adam that the accounts were reportable on form such as the FBAR and Form 8938. After Adam passed away and his daughter began going through his documents, she learns for the first time that Adam had these foreign accounts and that they were never reported.

Prior Foreign/Expat Tax Preparer Errors

• • • Example: Brian is a U.S. Person who has been working with a tax preparer for several years. In the most recent year, Brian’s tax preparer informs him (for the first tine) that Brian should have been reporting the foreign accounts he has even if they did not generate income and even if they are foreign pension accounts. Brian did not intentionally hide these accounts, so getting into compliance should not be much of an issue.

Prior/Current International Tax Attorney is Ineffective

• • • Example: Michelle is a U.S. citizen who has foreign accounts. She had a free consultation with a proclaimed ‘offshore disclosure expert’ and ends up signing up with the attorney. Pretty soon thereafter, the taxpayer realizes that this is just a one person operation and/or a firm that does not actually specialize in offshore disclosure and she wants to retain new counsel. The attorney is overcharging her in fees and is no longer as ‘available’ as the attorney claimed to be during the initial consultation. It is important to note that even if Michelle signed an agreement with the firm, she can terminate her agreement at any time and is entitled to her any unused fees. She can also dispute if the firm overcharged her hourly fees that they should not have charged her for. We help these taxpayers safely get into compliance with our cost effective, full service process.

Holocaust Survivors and Descendants

• • • Example: Charles is a U.S. person who lived through the Holocaust and still has a few accounts in Israel and Switzerland. He was not aware that he was required to report these accounts. As he got on in age, his son began helping him with his tax returns and learned for the first time that his father had these foreign accounts that dated all the way back to the Holocaust era, but were never reported.

Elderly Taxpayers who Relocated to the U.S. Post-Retirement

• • • Example:  David and Diane are Lawful Permanent Residents who relocated to the United States a few years ago to help their daughter care for her new baby. They never worked a day in their life in the United States but have accumulated a significant amount of foreign assets, accounts, and income from a lifetime of hard work. Since Taxpayers are now U.S. persons and earn a significant amount of income, they are required to file U.S. tax returns and various international reporting forms — including the FBAR.

Children/Relative Signature Authority Accounts of Foreign Taxpayers

• • • Example: Elaine is a U.S. person who does not have any foreign accounts of her own, but her foreign grandma placed Elaine on several of her foreign accounts to have signature authority in case anything was to happen to Elaine — and to help ease future probate and estate planning issues. It was only recently for the first time that Elaine’s grandmother told her about these foreign accounts. Even though Elaine does not currently have any interest in the foreign accounts and only has signature authority, she is still required to report this information to the IRS.

Unreported Foreign Inheritance

• • • Example: Frank is a Lawful Permanent Resident who has several family members who live abroad. Recently, his uncle passed away and left Frank a significant amount of money. Even though the inheritance is located overseas, and it was not transferred to the United States, Frank is still required to report this information to the IRS on Form 3520 — which he was not aware. Also, since the money is now in foreign accounts under Frank’s name, he also missed filing various international reporting forms (such as the FBAR or Form 8938) that he will have to file to get into compliance through one of the offshore amnesty programs.

Unreported Foreign Gift

• • • Example:  After graduating from medical school, Greg’s foreign (NRA) parents wanted to give Greg (Lawful Permanent Resident) a gift, so they gifted him $900,000 so that he could purchase his first home in the U.S.. Even though the gift is coming from Greg’s own parents and is not income, the value of the gift exceeds $100,000 and therefore Greg should have reported this information to the U.S. Government on IRS Form 3520.

Foreign Pension Reporting

• • • Example: Isabelle recently relocated to the United States after working for several years in a foreign country. She closed her foreign bank accounts before becoming a U.S. person, so she does not have any foreign bank accounts — but she does have three (3) pension accounts with a total combined value of $1.4 million. Even though those foreign pension accounts are located overseas, earned before Isabelle became a U.S. Person and she has not received any distributions, she is still required to report this information to the U.S. government on various international reporting forms such as the FBAR.

Offshore Disclosure and Expatriation

• • • Example: Linda is a Lawful Permanent Resident who has had her green card for 11 years but has not filed accurate tax reutrns. She now wants to give up her green card and terminate her U.S. person status — but since she is a long term resident with a significant amount of assets and investments both in the United States and abroad, she may be considered a covered expatriate and subject to the exit tax. Sometimes if the taxpayer can get into compliance before expatriating then they can minimize the exit tax implications and avoid covered expatriate status and/or the exit tax. We counsel hundreds of taxpayers each year with expatriation matters.

Foreign Mutual Funds and ETFs

• • • Example: Matthew is a U.S. person with several foreign investments, including foreign mutual funds and ETFs. Matthew’s CPA was unaware of the complex Form 8621 (PFIC) requirements and the Forms 8621 were not filed in several prior years. Also, the prior preparer reported the Mutual Fund/ETF sales as ‘Capital Gains’ on Schedule D instead of ‘PFIC Excess Distributions’ on Form 8621 — and the returns are missing the requisite calculation and attachments.

Pre-Criminal Willful Disclosures (VDP)

• • • Example: Nancy is a U.S. person who has a significant amount of undisclosed foreign accounts, assets, investments, and income. She knows she was required to report this information on her tax returns, but she intentionally hid the foreign account, asset, ad income information from her CPA. Nancy is now very concerned because one of her investment advisors is under investigation and worries that she will be the subject of an IRS/DOJ investigation. Nancy wants to submit to VDP before she is contacted by the U.S. government.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or 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. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

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.