Streamlined Filing & 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 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. As a result, many people are now finding out that they are not up to date and considering a voluntary disclosure.

What happens if you don’t file your tax returns?

Failing to report a foreign bank account or file US tax returns could result in severe penalties and require voluntary disclosure.

However, the good news is that we are experienced in helping clients go through their voluntary disclosure options including the streamlined compliance procedures and voluntary disclosure.

In essence if:

• you are a US person, including citizens, Green Card 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.

How to file a late tax return

Here at Ingleton Partners, we specialise 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 voluntary disclosure, to discuss your situation and the solutions available to you, with no obligation.

We can go through all the available options including, IRS streamlined filing and voluntary disclosure, 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.

IRS Streamlined Foreign Offshore Procedures

In 2014, the IRS expanded the terms of the streamlined filing compliance procedure (‘streamlined procedure’) to allow overseas Americans to file overdue US tax returns. Originally announced in 2012, the program gave delinquent taxpayers living abroad an opportunity to avoid penalties and fees by coming into compliance. Most significantly, the program has broadened eligibility criteria and eliminated all penalties related to late filing/late payments.

For the majority of individuals who get it touch, streamlined procedure is the route we would expect to follow. This IRS sanctioned procedure 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. It is important to 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.

Voluntary Disclosure

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.

Late filing services

We understand that it can be stressful to be behind on your US taxes, however here at Ingleton Partners we have the expertise to help US expats get caught up.  For more information on your obligations or for help with identifying your best options, call today or submit an enquiry online.