How Long Should I Wait Before Reporting Foreign Accounts?

How Long Should I Way Before Reporting Foreign Accounts?

When a U.S. Person Taxpayer such as a U.S. citizen, Lawful Permanent Resident, or foreign national who meets the Substantial Presence Test learns that they are out of offshore tax and reporting compliance for not reporting their offshore accounts, it can be a very stressful experience. While the IRS has developed various programs to assist Taxpayers in safely getting into compliance with filing late international information reporting forms, these programs can change over time — usually for the worse (e.g., higher penalties). The question then becomes whether the Taxpayer should wait to disclose their offshore accounts or move forward and get into compliance before the IRS finds out and issues fines and penalties against the taxpayer. In general, Taxpayers should not wait to get into compliance because the sooner they disclose their accounts the sooner they will regain their peace of mind — along with the reduced chance of an audit, examination, or penalty. Let’s look at a few reasons why Taxpayers should disclose their offshore accounts once they know they are out of compliance.

Reduce Your Stress About the Situation

When the Taxpayer realizes that they have not timely reported their foreign accounts, assets, investments, trusts, entities, etcetera it can be very overwhelming. This is compounded by the fact that there is a significant amount of fear-mongering online by tax practitioners making it seem like Taxpayers will be subject to criminal fines and penalties. The more the Taxpayer reads the deeper the rabbit hole. By getting into compliance, the Taxpayers can regain their peace of mind and move forward knowing that they have met all the necessary disclosure requirements.

Minimize or Eliminate Offshore Penalties

Especially for non-willful Taxpayers, the Internal Revenue Service has developed many different offshore tax amnesty programs to assist with safely getting into compliance. In general, the penalty sustained through the amnesty programs will be significantly less than the penalties that the Taxpayer is assessed during an audit or examination. Therefore, Taxpayers should consider getting into compliance sooner rather than later — to try to reduce their overall penalties.

The International Tax Amnesty Programs Can Change

The IRS has become more strict when it comes to offshore disclosure and compliance. The prior versions of various programs such as the Offshore Voluntary Disclosure Program (OVDP) or the Delinquent International Information Return Submission Procedures (DIIRSP) were more forgiving than the current versions of these programs. Thus, Taxpayers should be aware that if they wait too long to get into compliance, they may have to pay a higher penalty under these programs.

Did The Taxpayer Become Willful?

If Taxpayers wait too long between learning about their non-compliance and then applying to get into amnesty with the IRS, they may take a situation that ordinarily would have been non-willful and turn it into a willful scenario. For example, take a Taxpayer who learns about the offshore reporting requirements in the current year but then waits five years to submit to one of the programs. By the time the Taxpayer submits to one of these non-willful programs in five years, can they still certify under penalty of perjury that they are non-willful?

*These types of situations are facts specific but a real concern for Taxpayers who wait too long to get compliant.

Late Filing Penalties May Be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and 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.