If there is anything familiar left of the old offshore voluntary disclosure landscape for an Offshore Accounts Tax Lawyer after the 2014 update to the IRS Offshore Voluntary Disclosure Program (“OVDP”), it will be the submission of delinquent FBARs under the old FAQ 17. Of course, under the new 2014 OVDP, there is no FAQ 17.
However, an Offshore Accounts Tax Lawyer will find a very similar language under the new “Delinquent FBAR Submission Procedures”.
Offshore Accounts Tax Lawyer: Old 2012 OVDP FAQ 17
Under the old 2012 OVDP FAQ 17, an Offshore Accounts Tax Lawyer would advise his U.S. clients who reported and paid tax on all their taxable income for prior years but did not file FBARs that there would be no penalties for the failure to file the delinquent FBARs. The key to the application of Q&A 17 is that there should be no underreported tax liabilities (actually, no underreported income at all) by the taxpayer and the taxpayer was not previously contacted regarding an income tax examination or a request for delinquent returns.
Offshore Accounts Tax Lawyer: New 2014 OVDP Delinquent FBAR Submission Procedure
The 2014 OVDP rules offer to an Offshore Accounts Tax Lawyer fairly similar language. They state that, where neither Streamlined Filing Compliance Procedures nor the OVDP rules are applicable because the taxpayer does not need to file delinquent or amended tax returns to report and pay additional tax, the IRS is not likely to impose penalties as long as three conditions are met:
1. The taxpayer has not filed a required Report of Foreign Bank and Financial Accounts (FBAR) (FinCEN Form 114, previously Form TD F 90-22.1);
2. The taxpayer is not under a civil examination or a criminal investigation by the IRS; and
3. The taxpayer has not already been contacted by the IRS about the delinquent FBARs.
In such case, an Offshore Accounts Tax Lawyer should advise his clients to file the delinquent FBARs according to the FBAR instructions and include a statement explaining why the FBARs are filed late. All FBARs are required to be filed electronically at FinCen (contact an Offshore Accounts Tax Lawyer for more details).
If all of these conditions are met and the taxpayer voluntary files the FBARs with an explanatory statement, the IRS promises not to impose FBAR penalties. However, an Offshore Accounts Tax Lawyer should point out to his clients that, while the FBARs will not be automatically subject to audit, there is always a possibility that these FBARs may be selected for audit through the existing audit selection processes that are in place for any tax or information return.
Offshore Accounts Tax Lawyer: Issue of Streamlined vs. Delinquent FBAR Procedure
An interesting issue arises for an Offshore Accounts Tax Lawyer where the client closed his accounts four years ago (for example, in 2010) but still would have additional tax liability for the two years prior to that for year period (in this example, 2008 and 2009). Should an Offshore Accounts Tax Lawyer advise his client to enter the Streamlined Option at this point even though the amended tax returns would show no additional tax liability for the past three years?
In reality, situations are rarely as clear cut as this example and the legal determinations with respect to the path of your voluntary disclosure must be discussed with an experienced Offshore Account Tax Lawyer, at the international tax law firm of Sherayzen Law Office.
Contact Sherayzen Law Office for Help With Your Delinquent FBARs
If you have undisclosed foreign accounts, contact Sherayzen Law Office for professional legal help. Our experienced international tax law firm specializes in Offshore Voluntary disclosures and we can provide our expert opinion with respect to every offshore voluntary disclosure option open in your case.