Failing to report a foreign bank account or file US tax returns could result in severe penalties and require voluntary disclosure.
We are experienced in helping clients go through their voluntary disclosure options including the streamlined compliance procedures and voluntary disclosure.
In the last decade, there has been an ever increasing focus by the IRS, on ensuring that US citizens overseas are filing tax returns, information returns and accurately declaring all their foreign accounts and assets. Many people are now finding out that they are not up to date and considering a voluntary disclosure. With the implementation of information sharing legislation around the world (e.g. FATCA – which involves financial institutions providing information on US account holders to the IRS) having your tax affairs both up to date and correct has never been more important.
In essence if:
- you are a US person, including citizens, greencard holders (lawful permanent residents) and those who meet the substantial presence test;
- you have a foreign (non-US) bank account either in the UK or another country; and
- you have not filed a Report of Foreign Bank and Financial Accounts (FBAR) or filed a US tax return
Then, it is very likely you have filing requirements that have been missed. Additional reporting requirements also exist for companies and trusts.
Here at Ingleton Partners, we are specialised in helping those individuals who have never filed the necessary US tax returns and / or information returns. We understand the potential anxiety and stress associated with finding out about inadvertent mistakes and the penalties that can be assessed for late filings, so let us help you. We are always happy to have an introductory call on the matter of disclosure, to discuss your situation and the solutions available to you, with no obligation.
We can go through all the options available to you for disclosure, two of which we highlight below, and assess your exposure to penalties. As UK based, dual UK and US practitioners we understand the interaction with your UK taxes and the disclosure you need to make.
Streamlined Filing Compliance Procedure
This is the route we would expect to apply for the majority of individuals contacting us. The IRS streamlined filing compliance procedure (the ‘streamlined procedure’) provides a great opportunity for those who qualify, to enter an IRS sanctioned procedure, which could result in no penalties being assessed. The program announced by the IRS in June 2014 only came into operation on 1 July 2014 and is broadly available to all taxpayers provided they have not been the subject of a current or prior civil/criminal investigation by the IRS and they can certify that their actions were non-wilful. Be aware that the IRS state that this procedure may be discontinued at any time.
We are happy to discuss your case with you and establish where possible whether you can enter the streamlined procedure, whether you can qualify for the most favourable terms with respect to penalties and tell you what filings are likely to be required.
In our opinion the streamlined procedure is going to provide a great opportunity for many honest taxpayers living in the UK or elsewhere outside the US, to correct their affairs in a fair and proportionate manner.
For those taxpayers who are unsure whether their omissions are non-wilful and therefore may not be eligible for the Streamlined Procedure the IRS continue to operate a voluntary disclosure route.
The previous program for offshore voluntary disclosure closed in September 2018 and what remains will have a less prescribed approach and gives more discretion to IRS agents to assess the appropriate civil penalties in the case. That program offered some protection from criminal penalties and a fixed civil penalty regime with a 20-25% penalty on tax due and in most cases a 27.5% penalty on undisclosed foreign assets.
Taxpayers going through the voluntary disclosure procedure now, will need to first submit themselves for criminal pre-clearance with IRS Criminal Investigations before providing their returns, agreeing the tax and penalties and ultimately agreeing the case with the Large Business & International division of the IRS.
Under this regime, a full range of penalties are available to the IRS but instructions are provided to agents as to which ones are likely to be appropriate. This would appear to include a 75% of tax liability penalty for the tax returns and civil penalties for the willful omission to file FBARs which are the higher of, $100,000 or 50% of the financial account balance (but only applied to one year). The IRS say that penalties for failure to file information returns e.g. foreign trust or foreign company returns, will not be assessed except in exceptional circumstances.
For many taxpayers this penalty regime will prove more penal than the previous program (no doubt that was the IRS intention) but as there is some agent discretion arguments may be made to mitigate these penalties where the circumstances allow – for example there may be circumstances where the failure to file a return was wilful but the taxpayer genuinely was not aware of the FBAR requirements – though this is likely to be rare. In all cases the penalty regime set out assumes the full co-operation of the taxpayer and ultimately reaching an agreement with the IRS on tax and penalties – otherwise the case may be returned to Criminal Investigations.
With some taxpayers we might conclude that neither route is suitable and in that situation other options can be explored to submit delinquent returns with the IRS however, careful assessment of the risks and penalties is required.
Call, email or fill out our call back form if you would like to discuss your penalty exposure and options for a voluntary disclosure.