If you’re relatively new to the world of international tax law, you might be overwhelmed by the acronyms and jargon of offshore voluntary disclosure. At Randall & Associates, we’re here to help. We guide our clients through the complicated process of tax compliance and voluntary disclosure. Below, we explain the basics of IRS Offshore Voluntary Disclosure, focusing on the Offshore Voluntary Disclosure Program (OVDP), Streamlined Offshore Procedures, and Reasonable Cause.
The IRS Demands Detailed Offshore Reporting and Disclosures
The Internal Revenue Service expects detailed, thorough reporting about every U.S. taxpayer’s offshore accounts, as well as international income. Some foreign residents are shocked to discover that this includes passive investment income you earn overseas.
To be fully compliant, you must submit a myriad of tax forms and documents, including the following:
- Annual tax returns (Form 1040)
- Report of Foreign Bank and Financial Accounts forms, (FBAR or FinCEN 114)
- Ownership or Signature Authority over Foreign Accounts (Schedule B)
- Foreign Account Tax Compliance Act (FATCA) Form 8938
- Gift From Foreign Person forms (Form 3530)
- Disclosures of your foreign corporations, investments, and partnerships (Forms 5471, 8621, and 8865)
Non-compliance can result in incredibly high fines and penalties — in addition to criminal prosecution if your violations are willful or egregious.
While the threat of criminal prosecution is very real, it’s important to remember that most U.S. taxpayers don’t face tax evasion charges. Instead, the IRS will demand your unpaid taxes, interest, and high penalties. For example, failure to file an FBAR alone can result in a $10,000 violation per account, per year.
While it’s always best to maintain your compliance with the IRS’ requirements, an IRS Offshore Disclosure attorney understands that mistakes happen. While most of these errors are unintentional, correcting your violations requires attention to detail and a comprehensive legal strategy.
Unlike many other offshore compliance programs, OVDP is available to taxpayers who are in willful noncompliance. However, you cannot be currently under IRS examination to participate. To file under the program, you must submit an extensive filing that includes:
- Amended tax returns for eight years that accurately detail your offshore income and accounts
- Report of Foreign Bank and Financial Account (FBAR) forms for eight years
- Your Penalty Computation Worksheet
- Supporting information and documents
Typically, you must pay your unpaid income taxes, interest, and a 20% penalty, along with other penalties that might apply. However, the OVDP will let you avoid prosecution for tax evasion and other crimes.
If you’re interested in the Offshore Voluntary Disclosure Program (OVDP), you must act very quickly. The IRS has announced that the program will end in September 2018. If you do not submit your OVDP paperwork in the very near future, you will lose your chance to participate. Contact an international tax lawyer who focuses on IRS Offshore Voluntary Disclosure to learn more about your eligibility as well as the availability of the program.
Streamlined Offshore Procedures
Streamlined Offshore Procedures are one of the more popular IRS Offshore Voluntary Disclosure programs. There are two separate programs available to taxpayers with non-willful violations, as follows:
- Streamlined Domestic Offshore Procedures: U.S. residents with non-willful violations submit three years of amended tax returns and FBARs, and pay their unpaid taxes, interest, and a 5% penalty.
- Streamlined Foreign Offshore Procedures: foreign residents with non-willful violations submit three years of amended tax returns and FBARs, and pay their unpaid taxes and interest. The penalty is waived.
While the Streamlined Offshore Procedures do not shield you from criminal liability, they do bring you back into tax compliance with minimal penalties.
However, it’s important to emphasize that the Streamlined Offshore Procedures aren’t for everyone. If you have willful violations (or violations that might appear willful), you run the risk of criminal prosecution and accruing significant financial penalties if you improperly file under the Streamlined Offshore Procedures.
If you’re unsure whether you qualify, it’s always in your best interest to consult with an experienced IRS Offshore Voluntary Disclosure lawyer. Contact Randall & Associates to schedule a confidential, no-risk assessment.
What Is Reasonable Cause?
Unlike OVDP and the Streamlined Offshore Procedures, “reasonable cause” isn’t a formal IRS Offshore Voluntary Disclosure program. Instead, it’s a powerful legal concept that can help you avoid tax penalties for your violations. It is available to those individuals whose violations were non-willful and were completely unaware of their obligations to the IRS.
A reasonable cause application requires an extensive factual as well as legal analysis, and you should never file for reasonable cause without help from an experienced IRS Offshore Voluntary Disclosure attorney. If the IRS denies your reasonable cause application, you might have opened yourself to serious criminal and civil liability.
Depending on your unique circumstances, we’ll help you build a compliance strategy that might include reasonable cause, Streamlined Offshore Procedures, or other IRS Offshore Voluntary Disclosure processes.
Do I Need an International Tax Lawyer for My IRS Offshore Voluntary Disclosure?
International tax law is incredibly complex. While you might have a deep understanding of international business and investment, you probably don’t know every nuance of the U.S. Tax Code and the IRS Offshore Voluntary Disclosure Procedures. For this reason, it’s almost always in your best interest to consult with an international tax lawyer before you attempt a voluntary disclosure.
At Randall & Associates, we focus on complex IRS Offshore Voluntary Disclosures. We work alongside our clients, identifying their violations, building comprehensive compliance strategies, and advocating on their behalf with the IRS. We use our extensive experience with the IRS, U.S. Tax Courts, and private equity firms to advance our clients’ both immediate and long-term interests.
Consult With an IRS Offshore Voluntary Disclosure Attorney
If you’re ready to complete the IRS Offshore Voluntary Disclosure process, schedule a consultation with Randall & Associates. Based in Utah and Arizona, our international tax compliance team assists clients globally with their offshore disclosures and other complex tax matters.