Effective July 1, 2014, the Internal Revenue Service created a new streamlined program for US Persons to become compliant with their income tax filing and Foreign Bank Account Reporting (FBAR) obligations. These Programs are an alternative to the Offshore Voluntary Disclosure Program and come in two flavors. The First is intended for Taxpayers residing outside the US and is discussed below. The other is intended for Taxpayers residing within the US and will be discussed in a later article.
Taxpayers Residing Outside the United States:
In most cases, this program applies to US citizens or green card holders who, in any one of the last three years, spent 330 days or more living outside the United States and who did not have an “abode” in the US.
The main inquiry that needs to be made is whether a person acted wilfully in failing to declare the foreign income or failing to file the FBARs. This is a legal determination that must be made by a tax-attorney, possibly in consultation with a criminal law attorney. Non-wilfulness is defined by the IRS as negligence, inadvertence or mistake or conduct that is the result of a good faith misunderstanding of the law.
If a Taxpayer meets this standard and otherwise qualifies for the program, the taxpayer must file an affidavit stating that he acted in a non-willful manner, file tax returns for the last three years, file FBARs for the last six years, and pay the resulting taxes and interest. No additional penalties will be assessed.
The main downside to participating in this program is that there is no assurance that the IRS will not attempt to open an investigation to make a case that the Taxpayer acted willfully after all and now has also perjured himself.
Disclaimer: This Article is meant to provide general information only and is not intended to be used as legal advice.