The IRS has guidelines and procedures set up for streamlined reporting of previously unreported foreign bank accounts. These procedures ensure foreign bank accounts fully comply with US tax laws. In general, any US citizen may have bank accounts outside the US but must report their income and report the account on an annual basis. If you have unreported foreign bank accounts, foreign corporations, or other foreign assets but otherwise reported all your taxable income, then you may consider using the streamlined reporting process.
The streamlined process is for taxpayers who didn’t purposefully omit their foreign financial assets from their tax returns, but rather overlooked it. The Streamlined process provides a way to amend their returns and take care of the taxes and accrued penalties.
If you are considering submitting your past due tax returns using the streamlined program, You can submit your case here for a complimentary evaluation and discussion with one of our international tax specialists.
Proving the Mistake Wasn’t Willful
One of the largest components of the streamlined process is proving that the conduct that resulted in unreported foreign bank accounts wasn’t willful. All taxpayers must be able to certify that the lack of inclusion of the accounts was due to a mistake or negligence.
Taxpayers must be able to prove the conduct wasn’t willful, but no one should assume that is the case. An example of non-willful conduct is as follows.
You inherited an offshore bank account from a relative. A relative set up an account for you abroad when you were a minor. You knew about the account but didn’t think much of it. When you filed your taxes, your tax advisor didn’t ask about foreign accounts. It never came to mind since you do not perform transactions on the account, have not used the money before and can’t even remember where you placed the last statement. You do not use those funds. You inadvertently didn’t include it in your taxes.
This is an example of non-willful conduct. You knew about the account but forgot about it and because you weren’t asked the direct question regarding foreign accounts, it never came to mind. This could be an easy example to prove to the IRS, allowing you to use the streamlined Streamlined Filing Compliance Procedures to resolve your Unreported Foreign Foreign Bank Accounts.
Other accounts or transactions you must disclose include monetary gifts you received from anyone outside the United States for more than $10,000, any foreign trusts, or any ownership in non-US businesses that you own 50% or if there are less than 5 US owners.
You Can Also Lose Your Passport
Remember that The IRS has recently acquired the power to revoke your passport. IRS Passport revocation, along with limitation and outright denying passports has been a strong tool in bringing taxpayers into compliance. The IRS will make attempts to contact you at the last address on file; they will contact you with questions about your tax returns, and they will exhaust all communication options before they send a letter to the Department Of State Certifying your Seriously Delinquent Tax Debt.
Using the Streamlined Procedure to resolve Unreported Foreign Bank Account Reporting
If you can prove you inadvertently didn’t include your foreign bank accounts and are sure you can prove it beyond a reasonable doubt, you can file using the Streamlined FBAR method.
The largest benefit of the streamlined program is the reduced penalties and lower risk of criminal charges. In some cases, the penalties may be withdrawn entirely.
The streamlined procedures require you to admit the failure to report the account and pay the tax. You are admitting this under penalties of perjury, so make sure you are 100% certain of the information you provide. If you misunderstood the law or made some other inadvertent mistake, you can use the streamlined process.
In order to use it, you must not be under a current audit or examination. Filing the streamlined program doesn’t make you an automatic target for an audit either. Like anyone, though, the risk of audit exists, but it isn’t an automatic requirement if you file the past due Foreign Bank Account Reporting.
In order to qualify as a US citizen, you must:
- Prove that you filed your taxes for the last 3 years
- Admit and disclose the accounts you didn’t disclose
- Pay the 5% penalty on all accounts
- File amended tax returns for the last 3 years
- Include all international forms
- Note at the top of the amended returns ‘Streamlined Domestic Offshore’
Along with your returns, you must include the taxes due including the 5% penalty. You may obtain an extension to pay and to get permission to withdraw the funds from your retirement account.
Streamlined Procedures for Unreported Foreign Bank Account Reporting and COVID
COVID-19 changed the way the economy operated, and that included the IRS’s business doings. The ‘People First Initiative’ provided tax relief to taxpayers affected by the virus, and not just their health. Anyone unable to pay their tax debt from April 1, 2020 – July 15, 2020, weren’t held accountable.
The grace period ended on July 15, 2020, though. The IRS has started collecting again and anyone using the Streamlined Foreign Bank Reporting amendment should pay their past due taxes as soon as possible or enter an installment agreement to make good on the debt.
The faster you report the non-US bank accounts, the less ‘trouble’ you’ll be in and the less money you’ll owe. If you can’t prove that the non-inclusion of the accounts wasn’t willful, you may face other penalties and consequences including paying as much as 50% of the account balance for the years you failed to report the accounts.
If you’re looking to use the streamlined FBAR program, make sure you have professional help. It’s one of the most important filings you’ll make with the IRS as it determines not only your financial penalties but also any criminal charges you may face. If the issues were completely innocent, a professional tax advisor can help you rectify the issue, file the streamlined paperwork and make everything right with the IRS now that the COVID pandemic as far as the IRS is concerned is behind us and the IRS is back to business as usual.
We can provide a no fee case evaluation to determine if we are the optimal professional to tend to your case.