Posted by Adam Necelis, CPA
As we previously discussed, the IRS has made some changes to their streamlined offshore compliance program. The most significant change was that U.S. taxpayers that reside in the U.S. are eligible to participate (see the previous blog for more detail). In this article we will discuss which U.S. taxpayers that reside outside of the U.S. are eligible to participate in the program.
To be eligible for the program, U.S. taxpayers who reside outside of the U.S. must meet all of the following requirements:
(1) meet the applicable non-residency requirement
(2) have no requirement to have previously filed a U.S. tax return
(3) have failed to report the income from a foreign financial asset and pay tax, and may have failed to file
(4) such failures resulted from non-willful conduct
Once we determine that a taxpayer is eligible to participate in this program, the U.S. taxpayer will need to do two things to receive the favorable treatment under this program. The first thing the taxpayer will need to do is to amend or file the past 3 tax years’ tax returns to include the income from the foreign financial asset. U.S. taxpayers who reside outside of the U.S. can use this program to file delinquent tax returns. This includes all foreign information returns as well. The taxpayer is required to pay the full amount of tax and interest due.
The taxpayer will then need to file any delinquent FBARs for the past 6 tax years to report the foreign financial asset. As of October 2013, all prior FBARS need to be reported on the FinCEN Form 114 and not on the TD F 90-22.1.
U.S. taxpayers that reside outside of the U.S. are not subject to the Title 26 miscellaneous offshore penalty that U.S. taxpayers that reside in the U.S. are subject to. These U.S. taxpayers only need to pay the tax and interest due to avoid the accuracy-related penalties, information return penalties, and FBAR penalties.
This is a great opportunity for those who have unreported gross income from foreign financial accounts and would like to become tax compliant and only pay the tax and interest due. The IRS does state that to receive the favorable terms, all returns must be filed under very specific instructions. If you are eligible to participate in this program and would like to become tax compliant, please contact us to ensure that you do receive the beneficial treatment.