Finally… A fair offshore amnesty program

You may have recently learned that, as a U.S. citizen or resident, you were required to annually file a Form 114, Foreign Bank Account Report (FBAR), IRS Form 8938, Statement of Specified Foreign Financial Assets, and report income earned outside of the United States.   What steps should you take to correct your FBAR and income tax reporting failures in prior years?

Until the IRS overhauled the Streamlined Filing Compliance Procedures (commonly referred to as the “Streamlined Program”) in June of 2014, your options were not very good.  If you were a U.S. resident with unreported income (even if it was only $1.00), you generally only had three options.  Option 1 was the IRS’s Offshore Voluntary Disclosure Program, but that required that you pay eight years of back income taxes, interest and a 20% accuracy-related penalty.  In addition you had to pay an FBAR non-reporting penalty generally equal to 27.5% of the value of the nonreported account balance.   Option 2 was a quiet disclosure, which consisted of filing returns and paying back taxes for three years, plus interest.  Some taxpayers making voluntary disclosures also filed late FBARs and Form 8938s.  Option 3 was to simply fix the issue on a going-forward basis.   Each option had its pros and cons.  Another option, the Streamlined Filing Compliance Procedures (commonly referred to as the Streamlined Program), had attractive terms, but was only open to expatriates who hadn’t filed income tax returns.

In June of 2014, the IRS finally overhauled its foreign account disclosure programs and opened up the taxpayer-friendly Streamlined Program to U.S. residents.  The IRS also eased the Streamlined Program’s requirements.  The new Streamlined Program generally allows those taxpayers whose failure to report income and file information returns was due to non-willful conduct to resolve their foreign account issues by filing only three years of amended tax returns, paying back taxes, with interest, and paying a 0% (U.S. nonresidents) or 5% penalty (U.S. residents).

Whether the Streamlined Program is right for you depends on whether your failure to report your foreign financial accounts was due to “non-willful” conduct.  Please visit the page “What is Non-Willful Conduct” for more information?