Voluntarily Disclosing Overseas Accounts
2021 Option for Voluntarily Disclosing Overseas Accounts: Over the past few years, the Internal Revenue Service has made significant changes to the offshore voluntary disclosure programs involving overseas accounts, assets, investments and income. While there are still many overseas tax programs available to assist US Person Taxpayers with safely getting into compliance — the rules have changed a bit, and so it’s important to understand what options are available to Taxpayers for voluntarily disclosing overseas accounts. Let’s go through the basics of the 2021 Options for Voluntarily Disclosing Overseas Accounts: (under each subheading is a link to a much more comprehensive summary regarding this specific program).
Willful Overseas Disclosure Options
When it comes to taxpayers who are considered willful — or are unable to certify under penalty of perjury that they are non-willful — they are not left with many options. In fact, if they are considering or voluntary disclosure, they are essentially left with a single option — which is the voluntary disclosure program (VDP). The VDP rules significantly changed in late 2018 when the IRS terminated OVDP — and the traditional voluntary disclosure program (VDP) was expanded to handle both domestic and offshore disclosures.
Non-Willful Overseas Disclosure Options
For Taxpayers who are non-willful, there are multiple options available.
While a taxpayer may qualify for one or more of these options, it is important that they carefully evaluate their specific facts and circumstances while working with an experienced Board Certified Tax Law Specialist to ensure proper submission procedures are followed:
Streamlined Filing Compliance Procedures
For taxpayers who are non-willful one of the most common programs for voluntarily disclosing overseas accounts is the Streamlined Filing Compliance Procedures. The IRS Streamlined Filing Compliance program can be broken down further into the Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures.
Streamlined Domestic Offshore Procedures (SDOP)
Streamlined Domestic (SDOP) is for taxpayers who are non-willful, but do not qualify as foreign residents. Taxpayers submit three years of amended returns (along with other international information reporting forms) — and six years of FBARs. There is a 5% Title 26 Miscellaneous Offshore Penalty although not all of the unreported overseas assets are included in the penalty base.
Streamlined Foreign Offshore Procedures (SFOP)
Streamlined Foreign (SFOP) is for Taxpayers who are non-willful and qualify under the strict requirements of being a foreign resident. The foreign resident requirements will vary depending on whether the taxpayer is a US person because they are either a US Citizen/Legal Permanent Resident — or simply because they met the Substantial Presence Test. Under this version of the program, Taxpayers can submit Original Tax Returns — and the 5% penalties are waived.
Delinquent Overseas Procedures
The Delinquency Procedures are an alternative to the Streamlined Program. DIIRSP and DFSP primarily serve an alternative for the Streamlined Domestic Program — for taxpayers who were non-willful and want to seek to avoid the 5% penalty. Generally, this alternative was for taxpayers who had no unreported income , and the IRS would allow them to file the late forms — with no penalty.
In late 2020, the IRS amended the program — and now it is essentially a reasonable cause submission.
If a taxpayer can show they acted with Reasonable Cause and not willful neglect then they should not be penalized for non-compliance with their international information reporting requirements. There are many pros and cons regarding making a reasonable cause admission in lieu of a streamlined filing, and it is important to carefully go over the options with a Tax Specialist Attorney before making any proactive submission to the IRS.
2021 Options to Voluntarily Disclosing Overseas Accounts
In conclusion, while the Internal Revenue Service has modified the various different offshore voluntary disclosure programs, there are still various offshore tax amnesty options available to taxpayers in 2021 who are seeking to voluntarily disclose their overseas accounts, assets, investments, and income.
About Our International FBAR & FATCA Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm for assistance with getting compliant.