Since the 2007 financial crisis turned Congress’ attention to the deficit and national debt, perceptions that wealthy Americans were using offshore accounts, trusts, and various entities to avoid tax has motivated an array of enforcement measures. Currently, U.S. taxpayers, whether living at home or in a foreign nation, have an obligation to disclose their foreign accounts and assets when certain conditions are met. The two main disclosure obligations are, when applicable, to file for a Foreign Account and Tax Compliance (FATCA) and a Report of Foreign Bank and Financial Accounts (FBAR). For questions about your IRS or tax compliance concerns, contact a Sacramento tax attorney of NewPoint Law Group.
Taxpayers who do not make these disclosures when they have exceeded the amount of aggregate assets they are permitted to hold can face serious penalties. For FBAR, a penalty of $10,000 can be imposed for even accidental noncompliance. However, the IRS has offered many taxpayers a way out due to the difficulty of complying with these laws. For taxpayers with criminal concerns from possible perceptions of willfulness, Offshore Voluntary Disclosure can provide a means to correct past mistakes. Keep in mind that there are potentially large penalties and a high filing burden required, but the taxpayer still receives a level of protection from referral for criminal prosecution. Streamlined Disclosure can also cure past offshore noncompliance with significantly less fines when willfulness is not at issue.
Why Did Divorced or Separated Spouses Previously Face Difficulties in Using Streamlined Disclosure?
When taxes are filed by married couples jointly, they can receive certain benefits. Some taxpayers may retain some tax savings and an increased ability to contribute to IRAs. All taxpayers who file jointly benefit from a reduced amount of paperwork and filing compliance procedures; but, all joint tax returns must be signed by both spouses to be accepted by the IRS. Thus, when a couple wishes to amend their previously filed tax returns they must file an amended joint return with both signatures. There are several reasons as to why it may be difficult for an individual to obtain their former spouse’s signature, and up until recently this meant that the spouse was forced into OVDP with its increased penalties even if willfulness was not a concern. So, rather than paying a 5% penalty (domestic) or no penalty (foreign) under the Streamlined Program, taxpayers were required to pay a 25% or 50% offshore penalty in OVDP.
A Taxpayer Can Now Qualify for Streamline Disclosure Without the Signature of the Former Spouse
Previously, the IRS forced taxpayers who could not obtain their spouses’ signatures to utilize a process known as a “closing agreement” at the end of the OVDP to cure the defect of a missing signature on a joint return. Now, the IRS has updated its guidance and provides a means file Streamlined Disclosure for taxpayers who can only secure their own signature for their amended joint return. However, one condition that must be met to take advantage of this new policy is for the amended return to show a net increase in tax owed. If the filing shows the same amount of tax due or reveals a net decrease, the filer is not eligible to utilize the following procedure.
When a taxpayer files his or her amended joint returns along with the Streamlined Disclosure, the taxpayer should (in red ink where the other spouse’s signature would otherwise be made) indicate “SDO FAQ 14” for domestic filings. In the same manner, foreign filers should indicate “SFO FAQ 7” where their spouses would otherwise sign. As a matter of course, the IRS will send an additional request for the spouse’s signature. In response to this request, the taxpayer should once again refer to the appropriate FAQ question.
Speak to a Sacramento Tax Attorney Prior to Filing Streamlined Disclosures
While the Streamlined program provides for significant discounts on penalties or no penalty, an important aspect of the program is its inability to provide a degree of protection for individuals who may have willfully failed to comply with offshore disclosure requirements. Individuals considering a Streamlined filing should first consult with an experienced attorney who can assess the taxpayer’s risk. In some situations where you may not have meant to violate the law, an examiner from the IRS may nevertheless perceive behavior of this type. Therefore, it is always wise to contact an attorney prior to engaging in this program.
The Folsom FATCA compliance lawyers of the NewPoint Law Group can provide the meticulous and on-point guidance you need when making an offshore disclosure. To schedule a free and confidential initial consultation, please call 1-800-358-0305 today or contact us online.