If you are a United States citizen or tax resident living in the U.S. or abroad, you are required to file a U.S. income tax return to report to the IRS any income that you earn or receive from both inside and outside of the United States. This includes but is not limited to wages, investment income from foreign banks and securities, pensions, rental real estate, and/or interest in a foreign corporation or partnership. In addition, you are required to report any financial accounts held outside of the U.S. on the Foreign Bank Account Report (FBAR). Certain other foreign financial disclosures may be necessary. Failure to report income, the FBAR and required foreign disclosures may result in potentially harsh penalties. To further enforce the gathering of this information, the U.S. government implemented the Foreign Account Tax Compliance Act (FATCA) whereby the U.S. works bilaterally with over 100 other countries to identify assets/accounts held in those countries by U.S. taxpayers, essentially leaving “no place to hide money.”
While reporting of foreign income and assets is not a new requirement, it is one area in which many taxpayers are not knowledgeable and not in compliance. In response, the IRS implemented the Streamlined Program several years ago to provide taxpayers with an opportunity to voluntarily get into compliance and reduce the potentially harsh penalties related to incomplete or non-filings. Under the Streamlined Program the taxpayer has to attest that the failure to disclose previously was “non-willful.” The challenge is that determining “willful” vs. “non-willful” conduct is a legal matter and not easily ascertained. If the taxpayer wrongfully claims “non-willful” status in an attempt to file a Streamlined disclosure, the IRS penalties can be shocking.
However, if the taxpayer can rightfully claim “non-willful” status, there are some significant opportunities to the Streamlined method. Please note that there are further differences in the Streamlined Program for foreign/non-resident vs. domestic/resident filings.
KEY PROVISIONS OF THE STREAMLINED PROGRAM
- Non-willful conduct
- Delinquent or amended individual tax returns together with all required information returns must be filed for the 3 most recent years of non-compliance
- Foreign Bank Account Report (FBAR) must be filed for the 6 most recent years of non-compliance
- The Offshore Asset Penalty is 0% under Foreign Streamlined; it is 5% under Streamlined Domestic
- Income tax returns are not subject to failure-to-file, failure-to pay and accuracy-related penalties, provided the eligibility and compliance requirements of the Streamlined Program are met
Taxpayers must understand that each situation is different and needs to be reviewed on its own. Doing this requires well-versed professionals. With regard to determining “non-willful” status, Kerkering Barberio’s position is that the taxpayer needs an experienced attorney who specializes in these offshore disclosure programs to guide this part of the process. Whether the filing is for Foreign Streamlined or Domestic Streamlined, the reporting of non-U.S. income and assets is complex and requires a knowledgeable tax professional. Kerkering, Barberio & Co. has the team to do this. If you have questions on the Streamlined filing or any of the associated issues, please contact Phoebe Trumpler at at 941-365-4617.