The miscellaneous offshore penalty under the Streamlined Procedures is five percent of the highest aggregate account balance during the disclosure period. A number of factors can influence exactly how this penalty will be calculated in your case.
Asset Balances That Are Counted
The balances in all of your will generally be counted for the penalty calculation. The year-end balances will be reviewed and the highest aggregate balance will be used to determine your penalty amount.
Any asset that should have been reported will count for these purposes. Even if assets were reported on an FBAR, but the income from these accounts wasn’t reported on your tax return, they will also be counted for the penalty calculation.
Simply find the highest aggregate account balance and multiply it by five percent to determine your penalty amount under the Streamlined Procedures. This is the penalty that applies to domestic taxpayers.
Penalty for Overseas Taxpayers
Taxpayers residing outside of the U.S. may have the miscellaneous offshore penalty waived. You will still need to meet the other conditions required under this program, including paying your taxes and interest due on unreported income from foreign accounts—buy you won’t be required to pay the miscellaneous offshore penalty.
U.S. citizens or lawful permanent residents can meet the non-residency requirement if they don’t maintain a U.S. abode and spend at least 330 days outside of the United States. This requirement must only be met for one of the past three tax years.
Other taxpayers can meet the non-residency requirement if they fail to meet the substantial presence test for any one of the past three tax years. This test looks at how many days the taxpayer has spent inside the U.S. over the past three years and is commonly used to determine whether an individual is considered a resident for tax purposes.
Discuss Your Offshore Disclosure Options With a Tax Attorney
If your highest aggregate account balance during the disclosure period was $100,000, then a $5,000 penalty under the Streamlined Procedures may be much lower than what you would pay if the IRS assesses several years of FBAR penalties. You may be charged up to $10,000 per violation for the non-willful failure to file an FBAR.
Each offshore disclosure method has costs and benefits. Discuss your case with a tax attorney to determine your best option for disclosing your foreign accounts.
Call Ayar Law at 800.571.7175 to request free, no-obligation tax advice from an IRS tax attorney.