If you failed to file FBARs for one or more tax years, you have several options for correcting your noncompliance. The best option for your situation will depend on many factors, and you should consult a tax attorney before choosing an offshore disclosure method.
A quiet disclosure involves submitting the delinquent FBARs along with a reasonable cause statement. You can only use this method if you properly report any income from your foreign accounts on your tax return.
The main benefits of this offshore disclosure method are its simplicity and lack of any required penalty payments. However, this isn’t a good option if you have unreported income or may have committed willful FBAR violations.
The Streamlined Procedures are a middle-ground offshore disclosure method. There are more requirements than a Quiet Disclosure, but the penalties are generally less onerous than those assessed in the new Offshore Disclosure Program.
You’ll need to submit up to three years of amended tax returns and up to six years of delinquent FBARs to use the Streamlined Procedures. You may also be charged a miscellaneous offshore penalty of 5% of the highest aggregate account balance during the disclosure period.
The Streamlined Procedures may only be used if you certify that your conduct was non-willful. If the IRS decides your conduct was willful, you may face criminal FBAR penalties.
The Offshore Disclosure Program is the only option that offers immunity from criminal prosecution, making it the best choice for taxpayers who may have willfully failed to file FBARs. However, it also involves the highest potential penalty assessments.
These include willful FBAR penalties, which can total up to $100,000 or 50% of the highest aggregate foreign account balance. You’ll also be required to disclose six years of FBAR noncompliance and failure to report foreign income.
To determine which program is best, you’ll need to carefully analyze all of the facts of your situation and compare the costs and benefits of each disclosure method. Using the wrong disclosure option could have serious repercussions, including IRS audits or criminal tax investigations.
To get help with offshore disclosure matters, contact Ayar Law at 800.571.7175 to get a free, no-obligation tax case evaluation.
