Last week the IRS updated its streamlined offshore compliance program to create more flexibility for both domestic and international U.S. taxpayers to follow. The program is designed for taxpayers whose failure to comply with regulations was non-willful. Those taxpayers who failure to comply was willful are not able to participate in this program. Building upon previous changes made earlier this year, these changes are designed to further encourage taxpayer participation in the latest round of changes. The goal is to permit taxpayers with offshore assets to come into compliance with the IRS at a significantly reduced penalty rate. Below we have provided a brief summary of the eligibility qualifications, changes and limitations that apply. For individuals considering entering into a compliance program with the IRS, it’s important to carefully review your options to ensure you are making the best selection for your situation.
Below is a summary of the eligibility requirements for those interested in program participation, including:
- Must fail to meet the nonresidency requirement
- Previously filed a U.S. tax return for each of the three most recent years
- Have failed to report gross income from a foreign financial asset and pay tax
- Failures should result from non-willful conduct
Non U.S. Residents
- Meet one of the nonresident requirements
- Failed to report the income from a foreign financial asset and pay related tax
- Failures to comply should result from non-willful conduct.
To participate in the program, both U.S. and non-U.S. residents must take the following steps:
- File delinquent or amended tax returns with all other required information returns for the most recent three years
- File any delinquent FBARs for the most recent six years for which the FBAR due dates has passed.
- Pay the full amount of the taxes, interest, and where applicable, the offshore penalty when due when filing the returns.
Taxpayers who participate in the program and comply with all requirements will not be subject to several standard penalties. These include failure to file and failure to pay penalties, accuracy penalties, information return penalties and FBAR penalties. In addition, the IRS has stated that if returns filed under these procedures are selected for an audit, there will not be any additional penalties resulting from the review. The only exception is in situations when the audit uncovers willful noncompliance in which case additional penalties and taxes will be assessed and are due to the IRS.
Take the Next Steps
The IRS continues to take steps to encourage taxpayers to come into compliance with existing regulations. For this reason, it’s important to understand the program changes and assess whether you can benefit from taking advantage of this opportunity. It’s critical to speak with a professional before contacting the IRS to ensure this is the best program for you. For additional information on changes to the streamlined offshore compliance procedures, please contact JLK Rosenberger, at 949-860-9902, or click here for email.