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Monday, May 4, 2015

What Tax Options Do I Have for Unreported Offshore Accounts?

If you have unreported financial accounts located in another country and are residing in the U.S. you need to be doing a lot of research. Trying to hide an offshore account can feel like trying to hide a dead body. How can you come clean with the least amount of loss?

When it comes to having an unreported offshore account, you need to take this with the utmost seriousness. Ignoring the problem will not work, nor will trying to hide the account. Here is a look at the tax options you have for unreported offshore accounts.

And just a final disclaimer that may save your life: Every situation is different. Read the IRS posts and don't rely on third party information.

These scenarios all assume the taxpayer is residing in the United States. Once you participate in either the streamlined or OVDP, you CANNOT apply for the other.

 Streamlined Residing in U.S. 

Who may use the Streamlined Domestic Offshore Procedures

  • You (or your spouse if joint account) are a resident for tax purposes 
  • You filed tax returns for the past 3 years
  • You did NOT report income from foreign accounts on one or more tax return
  • You did NOT report FBARs and/or forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621 on the foreign accounts that were not reported
  •  You failed to report foreign accounts because of non-willful conduct ( You will be investigated on this.)


Procedures to File Streamlined Domestic Offshore Procedures

  •  File amended tax returns for the 3 previous years to reflect foreign income (read further)
  • File FBARs each of the 6 most recent years
  • Sign a Certification by U.S. Person Residing in United States
  • Pay the tax and penalties related to the tax returns (20% accuracy related penalty, taxes that should have been paid plus interest
  • Pay the Title 26 miscellaneous offshore penalty (5% of the highest value of your account(s) over the period of the past 6 years for FBARS)

Offshore Voluntary Disclosure Program

  • Offered to taxpayers with undisclosed income from offshore accounts (you failed to report income related to those offshore accounts)
  • Protects taxpayer from criminal prosecution
  •  Pay taxes due plus interest, 20% accuracy related penalty on income not declared, and 27% of the of the highest value of your account(s) over the period of the past 6 years for FBARS

Delinquent FBAR Filing (No Penalties)

  • Offered to taxpayers who did NOT file previous FBAR FinCen report 114 but DID report ALL foreign income (I.E. interest income) on U.S. Tax Return
  • No penalties or fees, just file the FBARS
  • An example of a foreign FBAR account that would qualify for delinquent FBAR filing without using the OVDP or Streamlined would be an account of stocks that were never sold or distributed to the owner and there was NO income to report in the past 6 years OR a foreign account where the taxpayer reported ALL interest income on the 1040 but was unaware there was a need to file an FBAR.