New IRS guidance Announced for IRS Streamlined Offshore Procedures.

In the midst of tough tax season, many U.S taxpayers are unfortunately surprised to discover that they have a U.S. tax reporting obligation on financial accounts or assets held overseas. Once they discover their tax and reporting obligation, there are a number of programs through which they can become compliant.

One option, if the taxpayers meet the requirements, is to file under the Streamlined Domestic Offshore Procedures (SDOP) or the Streamlined Foreign Offshore Procedures (SFOP). Our firm has recently received many inquiries regarding these new IRS Streamlined Offshore Procedures. These programs require U.S. taxpayers to certify that their prior non-compliant conduct was non-willful.

The IRS earlier this month announced new guidance under the Streamlined programs. The new guidance announces three new frequently asked questions to guide taxpayers in navigating the complex Streamlined programs. The new questions are presented below:

Q13

What facts do I need to include in completing the narrative statement of facts portion of the Form 14654?

Provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Include the whole story including favorable and unfavorable facts. Specific reasons, whether favorable or unfavorable to you, should include your personal background, financial background, and anything else you believe is relevant to your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Additionally, explain the source of funds in all of your foreign financial accounts/assets. For example, explain whether you inherited the account/asset, whether you opened it while residing in a foreign country, or whether you had a business reason to open or use it. And explain your contacts with the account/asset including withdrawals, deposits, and investment/management decisions. Provide a complete story about your foreign financial account/asset.

The following points address common situations that may apply to you:

We realize that many taxpayers failed to acknowledge their financial interest in or signature authority over foreign financial accounts on Form 1040, Schedule B. If you (or your return preparer) inadvertently checked “no” on Schedule B, line 7a, simply provide your explanation.
We realize that some taxpayers that owned or controlled a foreign entity (e.g., corporation, trust, partnership, IBC, etc.) failed to properly report ownership of the entity or transactions with the foreign entity. If you (or your return preparer) inadvertently failed to report ownership or control of the foreign entity or transactions with the foreign entity, explain why and include your understanding of your reporting obligations to the IRS and to foreign jurisdictions.
If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice. Also provide background such as how you came into contact with the advisor and frequency of communication with the advisor.
If married taxpayers submitting a joint certification have different reasons, provide the individual reasons for each spouse separately in the statement of facts.

Q14

In one or more of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed, I filed joint income tax returns. But my spouse/former spouse will not sign joint amended returns or a joint certification on Form 14654 for a Streamlined submission. What can I do? Am I precluded from using the Streamlined Domestic Offshore Procedures?

We understand that in certain cases (including but not limited to separation or divorce), your spouse/former spouse may not be willing to sign joint amended income tax returns or a joint certification on Form 14654.

You may submit a joint amended income tax return with only your signature to Streamlined Domestic Offshore Procedures so long as your joint amended return shows a net increase in tax. Please explain your inability to secure your spouse’s/former spouse’s signature in the narrative statement of facts on Form 14654. And write “SDO FAQ 14” in red ink in the area for your spouse’s signature on the amended returns and Form 14654.

As a matter of routine processing, the Service will request the other spouse’s signature on joint amended returns with only one signature. If at the time the Service makes a request for your spouse’s/former spouse’s signature on a joint amended return or joint certification you are still unable to secure your spouse’s/former spouse’s signature, please respond to the inquiry by referencing this FAQ.

You may not submit a joint amended income tax return with only your signature to Streamlined Domestic Offshore Procedures showing a net decrease in tax or an increase in credit.

Q15

Who can I contact if I have general questions about the terms of the Streamlined Filing Compliance Procedures or completing Form 14654?

If you have questions about the terms of the Streamlined Filing Compliance Procedures or completing Form 14654, you may contact the OVDP Hotline at 267-941-0020.

The OVDP Hotline will not provide case-specific or legal advice.

With the new guidance, very careful drafting and persuasive legal advocacy of a taxpayer’s particular circumstances is still recommended for a clear demonstration of non-willfulness. Beware: the statement can be used against the taxpayer. The narrative portion of the certification form has always been the most important part of the streamlined submission, because that is what the IRS will review in order to determine whether the taxpayer’s failure to file FBARs and report income from offshore accounts was non-willful. All certifications are reviewed carefully by the IRS.

While the streamlined program offers a welcome option for many taxpayers with undeclared accounts, other ways to address past noncompliance remain viable, including the OVDP program and Delinquent FBAR Submission Procedures and Delinquent International Information Return Submission Procedures. The analysis to enter the one program versus other alternative options is complex and requires full legal analysis by a competent experienced tax attorney.

The IRS streamlined program makes it easier for some taxpayers and more difficult for others. Detailed analysis is required to ascertain the risk/reward for each taxpayer. Regardless, as FATCA continues to go fully online (and the cooperating bank list grows), the cost and risk of doing nothing has gone up exponentially. In summary, taxpayers with undisclosed offshore accounts should fully explore some form of voluntary disclosure before it is too late and much more costly.

Our firm presented an informational webinar on the Streamlined Filing Compliance Procedures. Materials from the webinar can be downloaded here: Game Changer Streamline.

Patel Law Offices has consulted with hundreds of clients regarding their offshore asset and income compliance issues. Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign assets.

Patel Law Offices offers a strategy session to discuss how to resolve your legal problem. Conveniently schedule online today with our online scheduler and questionnaire.

Parag Patel

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