International Information Return Penalty Abatement
Each year, US taxpayers may have one or several international information reporting requirements in order to disclose their foreign accounts, assets, and investments to the IRS. It is not uncommon for taxpayers to be unaware of these reporting requirements for many years — and to only learn about the missed requirements after the time to file has passed. Even though it may have been several years since the noncompliance took place, in general, the statute of limitations clock does not being ticking until a form has been filed — which means taxpayers may still be on the hook for several years of unreported international information returns. But, just because a person missed the reporting requirement does not mean that they are out of luck or will automatically become subject to fines and penalties. In fact, the IRS has many different options available for taxpayers who may not have previously filed international information returns. Here is a brief summary of why you will most likely end up just fine.
Notice 2022-36 May Be Helpful
This is a temporary option that was published by the Internal Revenue Service in August 2022. It allows certain taxpayers who may have filed late international information returns such as Form 3520, Form 3520–A, and Form 5471. There is a hard deadline to meet this requirement which is September 30, 2022. It is important to note, that it only applies to the years 2019 and 2020 and does not apply to several other forms such as FBAR and Form 8938.
Streamlined Procedures Are Very Safe
Most taxpayers who miss their reporting requirements are non-willful and will qualify for the Streamlined Filing Compliance Procedures. Some “international tax experts” want you to believe that by submitting to the program you are going to be subject to a criminal investigation or that the submission procedures are fraught with peril.
That is a prime example of fear-mongering.
99% of the time, non-willful taxpayers will make it through the program with no issue. Of course, if you are willful then this is not the program for you, because if you are willful and you get caught, you may be on the hook for much higher fines and penalties.
Most FBAR Violations Are Civil
The reason why most of the published FBAR cases involve willfulness and/or criminal violations is that these cases are the exceptions and not the norm. Most of the time, when a taxpayer has an FBAR violation, it is non-willful and civil in nature. While the different circuits currently conflict as to how a penalty should be issued, the Supreme Court is scheduled to handle this FBAR issue sooner than later in the case of Bittner.
Delinquency Procedures For FBAR Only
When a taxpayer only has missed the FBAR and not other international information returns, they may still qualify for the Delinquent FBAR Submission Procedures (DFSP) and avoid penalties. It is important to note that when taxpayers also have other forms that they missed such as Form 8938, then technically they would not qualify for the Delinquent FBAR Submission Procedures. Instead, they would qualify for the Delinquent International Information Return Submission Procedures (DIIRSP) — but unfortunately as of November 2020, these procedures no longer provide an automatic penalty waiver.
Take a Deep Breath, You Will Be Fine
Yes, being out of compliance with the Internal Revenue Service can be scary. And, all the nonsense you read online about the potential what-ifs can make it even more stressful. But, most people make it through the offshore disclosure programs just fine and without any issue. Before making any proactive representation to the IRS, you should speak with one or more Board-Certified Tax Law Specialists who specialize exclusively in offshore tax compliance matters to help you get an accurate idea of the offshore compliance landscape.
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.