Unreported Foreign Accounts: Which Legal Strategy to Choose

Unreported Foreign Accounts: Which Legal Strategy to Choose

Unreported Foreign Accounts and/or Assets

Tax season is upon us again, and many Taxpayers will learn for the first time (or as their annual reminder) that they have unreported foreign accounts, assets, investments, and/or income from prior years. When a person is considered a U.S. person for tax purposes, they will generally have to report their worldwide income to the US government when they file annual tax returns — as well as disclose their foreign assets and accounts. In recent years, the US government has significantly increased the enforcement of foreign accounts compliance. US Persons, such as U.S. Citizens, Lawful Permanent Residents, and foreign nationals who meet the Substantial Presence Test may have multiple international information reporting forms that they are required to file each year such as the FBAR, FATCA Form 8938, Form 3520/3520-A and Form 5471. And, when a person has unreported foreign accounts, they may become subject to fines and penalties. Oftentimes, these penalties may be avoided or limited if a Taxpayer qualifies to submit to one of the offshore amnesty programs. The question then becomes which legal strategy should a Taxpayer choose in order to disclose their unreported accounts. Let’s go through some of the different strategies a person may take when they learn they have unreported foreign accounts.

Offshore Disclosure of Unreported Accounts, Assets, or Income

Many Taxpayers would be surprised to learn that the safest and easiest process for getting into compliance is usually submitting through the IRS-approved offshore amnesty programs. Due to all the unnecessary fear-mongering online, Taxpayers are misled to believe that they are automatically willful and may suffer criminal penalties as a result of their noncompliance. In fact, the majority of the time, Taxpayers have only committed a civil violation and these civil violations can be resolved by using one of the approved offshore amnesty programs such as the Streamlined Procedures (SFCP), Delinquency Procedures, or Voluntary Disclosure Program (VDP).

Closing Your Accounts and Burying Your Head in the Sand

It can be very overwhelming for some Taxpayers to learn that they have been out of compliance for many years. Some Taxpayers are overwhelmed to the point that they simply want to forget that the non-compliance ever happened in the first place — and hope that it goes away (which is an understandable response). Of course, not every Taxpayer who has unreported foreign accounts will land on the IRS’ radar. The problem is, for Taxpayers who do find themselves in the IRS crosshairs (usually due to being selected for IRS audit or examination), they could end up in a much more complicated position than they would have been in had they submitted to the IRS voluntarily though one of the disclosure programs. Thus, Taxpayers should be cautious as to how they proceed once learning they have unreported foreign accounts — and especially if they are considering a quiet disclosure.

Quiet Disclosure

With a quiet disclosure, the Taxpayer forgoes submitting to the IRS through one of the approved offshore disclosure/amnesty programs and instead either begins to file forward (without resolving missed filings from prior years) or files prior year missed forms without following proper protocol. The IRS has stated that if they determine that a Taxpayer intentionally sought to avoid penalties by either filing forward or mass filing prior year missed forms, it can lead to significant fines and penalties and even an IRS Special Agent Investigation.

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. 

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When You Are Ready to Get Into Compliance

Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters. When it comes time to selecting an attorney, one of the most important aspects is to determine whether you want to work with an hourly attorney or a full-service tax/law firm that charges a flat fee for the full submission and post-submission process. Click Here to learn more about why the flat-fee model is the preferred method for Taxpayers across the globe.

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.