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NEW STREAMLINED APPROACH FOR TAXPAYERS LIVING ABROAD TO FILE PAST YEARS
RETURNS AND REQUIRED FOREIGN ASSET DISCLOSURE FORMS (Effective September
1, 2012)
By Don D. Nelson, Attorney at Law, C.P.A.
As of 9/1/12 there is a new streamed and much easier program for
delinquent taxpayer abroad to file their tax returns and other required
forms. This program permits you to only to file the past 3 year tax
returns ( including required forms for foreign corporations,
partnerships, trusts, etc.) and past 6 years FBAR (foreign bank and
financial account report forms) and if accepted all of your past tax
omissions are forgiven. If you owe income taxes, under this program the
IRS will only impose normal penalties and interest on top of the taxes
owed.
There are some restrictions for you to use this program to become
current:
-
You must have resided outside of the USA since 1/1/2009.
-
You cannot have material economic activity in the USA
-
You must have filed required tax returns in your country of
residence
-
You cannot owe more than $1,500 in US taxes (after tax credits) for
the three most recent years you file your Form 1040.
-
Your personal situation cannot include certain “high risk factors”
as defined by the IRS and are set forth below.
The IRS defines “ High
Risk Factors”
are those which
might
cause you to be thrown out of this program. These factors include:
-
Amended returns other than those filed to claim treaty relief from
failing to make timely elections with respect to foreign pension
plans.
-
If any of returns submitted claim a refund
-
There is material economic activity in the US
-
The taxpayer is under audit or investigation by the IRS
-
US source income
-
Indications of sophisticated tax planning or avoidance.
-
The taxpayer has an interest in entities located outside of his or
her country of residence
-
The taxpayer has previously received penalty notices or FBAR warning
letter.
-
The taxpayer has financial interest or authority in financial
accounts located outside the taxpayer’s country of residence.
This program can also be used to file amended returns to claim
retroactive relief for those who failed to timely elect income deferral
on certain retirement and savings plans where deferral is permitted by
the relvant US tax treaty (such as Canada)
If you enter this new program and the IRS decides you are not eligible
due “high risk factors” they will send the return for examination. This
may result in the imposition of regular penalties as well as additional
penalties for not timely filing certain foreign assets reporting forms
(which can be very$10,000 or more per year for foreign asset reporting
forms) and possible criminal prosecution. If rejected from this program
you cannot then enter the regular 2012 Offshore Voluntary Disclosure
Initiative which reduces certain penalties and in most situations
forecloses the possibility of criminal prosecution.
Due to the many variables involved in the four possible methods you can
use to file past tax returns with foreign income or asset issues with
the IRS, it is best to talk with a tax professional before you proceed.
Any one of the following procedures may apply:
1. The regular disclosure program
2. The 2012 Offshore Voluntary Disclosure Program
3. The “Streamlined” approached that became effective as of 9/1/2012.
4. “ Silent Disclosure” which is frowned upon by the IRS.***
We can advise you based on your particular facts and circumstances the
best way to proceed. As an Attorney/CPA we offer our clients the privacy
and confidentiality of “Attorney-Client Privilege” which is not
available from other CPAs, accountants and enrolled agents.
LINK TO NEW 9/1/2012 STREAMLINED DISCLOSURE PROGRAM AND PROCEDURES
LINK TO FREQUENTLY ASKED QUESTIONS FOR THE 2012 OFFSHORE VOLUNTARY
DISCLOSURE INITIATIVE AND PROCEDURES FOR ENTERING THAT PROGRAM
LINK TO IRS GENERAL CID DISCLOSURE PROGRAM
LINK TO IRS PENALTIES INFORMATION
*** The IRS has defined “Silent Disclosure” as the situation where the
delinquent taxpayer just files all past unfiled returns and foreign
asset disclosure forms in the normal manner in hopes that they will flow
through the system without being noticed and therefore none of the very
high special penalties for failing to file foreign asset reporting
forms are assessed. The IRS says that if they catch anyone trying this
method (which was commonly used 4-5 years ago) they will immediately
send all such returns to audit examination and all applicable failure to
file penalties will be imposed.
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