By Lynn K. Ching
Perhaps you had a foreign bank account or securities account from prior years of your youth, or maybe you inherited income-producing rental property located in a foreign country, or was the beneficiary of a gift from a foreign person – to name a few.
If so, you may have an obligation to disclose your interest in foreign assets to the Internal Revenue Service (IRS) and The Financial Crimes Enforcement Network (FinCen). These disclosure forms include but are not limited to FBAR, Forms 3520 and 3520A, Form 8938 and Form 5471.
Failure to do so may subject you to onerous civil penalties and/or criminal liability.
Non-Willful Failure to File Disclosure Forms
For those taxpayers who just did not know of their filing obligation or perhaps knew about it but mistakenly believed that they were exempt from having to file the disclosure forms, the IRS has an expanded Streamline Program to bring you into compliance.
To qualify for the 2022 IRS Streamlined Program:
Taxpayers must certify that conduct was not willful. Taxpayers using either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures, will be required to certify, in accordance with the specific instructions set forth below, that the failure to report all income, pay all tax and submit all required information returns, including FBARs (FinCEN Form 114, previously Form TD F 90-22,1) was due to non-willful conduct. Non-willful conduct is conduct that is due to negligence inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.
IRS has NOT initiated a civil examination of taxpayer’s returns for any taxable year. If the IRS has initiated a civil examination of taxpayer’s returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the streamlined procedures. Taxpayers under examination may consult with their agent. Similarly, a taxpayer under criminal investigation by IRS Criminal Investigation is also ineligible to use the streamlined procedures.
Taxpayers eligible to use streamlined procedures who have previously filed delinquent or amended returns must pay previous penalty assessments. Taxpayers eligible to use the streamlined procedures who have previously filed delinquent or amended returns in an attempt to address U.S. tax and information reporting obligations with respect to foreign financial assets (so-called “quiet disclosures” made outside of the Offshore Voluntary Disclosure Program (OVDP) or its predecessor programs) may still use the streamlined procedures by following the instructions set forth below. However, any penalty assessments previously made with respect to those filing will not be abated.
Taxpayers who want to participate in the streamlined procedures need
a valid Taxpayer Identification Number. All returns submitted under the
streamlined procedures must have a valid Taxpayer Identification Number. For U.S. citizens, resident aliens, and certain other individuals, the proper TIN is a valid Social Security Number (SSN). For individuals who are not eligible for an SSN or ITIN, your tax return will not be processed under the streamlined procedures. However, for taxpayers who are ineligible for an SSN but do not have an ITIN, a submission may be made under the streamlined procedures if accompanied by a complete ITIN application. Additional information on getting an ITIN is available.
Willful Failure to File Disclosure Forms
IRS Criminal Investigation Voluntary Disclosure Practice or streamlined procedures
Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns was due to willful conduct and who therefore seek assurance that they will not be subject to criminal liability and/or substantial monetary penalties should consider participating in the IRS Criminal Investigation Voluntary Disclosure Practice and should consult with their professional or legal advisers.
Lynn K. Ching is a partner and attorney at Diosdi Ching & Liu, LLP, located in San Francisco, California. Lynn may be reached at (415) 318-3990 or by email at lching@sftaxcounsel.com.
This article is not legal or tax advice. If you are in need of legal or tax advice, you should immediately consult a licensed attorney.