Recently, the IRS relaxed the requirements for compliance and significantly reduced the penalty for eligible taxpayers who non-willfully failed to disclose otherwise reportable foreign financial account(s)/asset(s) and gross income derived therefrom. The relevant disclosure forms involved include FinCEN Form 114 (previously Form TD F 90-22.1 (FBAR)), as well as various other international information returns.
Prior to the IRS's recent announcement, taxpayers faced a penalty of up to 27.5% of the highest aggregate balance/value of the taxpayer's undisclosed foreign financial assets pursuant to the draconian terms of the Offshore Voluntary Disclosure Program (OVDP).
Under the new, so-called Streamlined Offshore Procedure, eligible persons are now subject to a reduced either 0% or 5% penalty (instead of 27.5%), depending on whether the specific person meets a specialized residency test.
Taxpayers who wish to take advantage of the newly relaxed Streamlined Offshore Procedures will be required to, among other things, (i) file amended tax returns for 3 years, (ii) file information return for 6 years, and (iii) certify under penalties of perjury that the prior failure to report all income, pay all tax, and file all required information returns, including FBARs was due to non-willful conduct.
Per IRS, these new procedures will be available for an indefinite period of time until otherwise announced. Now is a good opportunity to take advantage of the reduced penalty structure before the IRS decides to close the Program or modify it somehow.
The IRS and he Department of Justice offshore enforcement efforts continue to raise the risk of detection of taxpayers with undisclosed foreign accounts and assets for the foreseeable future; Please contact us so we can determine eligibility under the new Streamlined Offshore Procedure.