For those taxpayers who are unsure whether their omissions are non-wilful and therefore may not be eligible for the Streamlined Procedure, the IRS continues to operate a voluntary disclosure route.
What are the procedures for disclosure?
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 on the tax and penalties and ultimately agreeing on the case with the Large Business & International division of the IRS.
What are the penalties?
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 have said 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 punishing than the previous program (no doubt that was the IRS intention) but as there is scope for 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 cooperation of the taxpayer and ultimately reaching an agreement with the IRS on tax and penalties – otherwise, the case may be returned to Criminal Investigations.
How can we help?
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.