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. This Program is an alternative to the Offshore Voluntary Disclosure Program. We had previously discussed the program intended for Taxpayers residing outside the United States. In this Article we will explore the alternative for those Taxpayers residing within the United States.
This program applies to US citizens or green card holders who, in any one of the last three years, spent less than 330 days living outside the United States and or who had an “abode” in the US.
The main inquiry with this program is again the question of 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 again 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. In addition, the Taxpayer must then pay a 5% penalty on all previously undisclosed foreign financial assets.
The resident streamlined program affidavit includes a waiver of all defenses. This raises the concern that the Taxpayer may not only waive the statute of limitations but also their Fifth Amendment right against self-incrimination. Since 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, the Taxpayer may be subject to prosecution at the government’s whim.
Disclaimer: This Article is meant to provide general information only and is not intended to be used as legal advice.