I have previously posted on the need for those who are still out of compliance with U.S. tax law to become compliant with their 2016 tax and FBAR filings. “See post of 11/17/16 Taxpayers Must Become Compliant with U.S. Offshore Tax Filing Requirements and FBAR reporting by 2016 – Time May be Running out for Non-willfulness Claims .” https://the-tax-wars.net/2016/11/17/taxpayers-must-become-compliant-with-u-s-offshore-tax-filing-requirements-and-fbar-reporting-by-2016-time-may-be-running-out-on-non-willfulness-claims/
A strategy for coming into compliance should include the following:
1. File an extension for your 2016 income tax return.
2. Your 2016 FBAR, due April 15, 2017, has been automatically extended by FinCEN to October 15, 2017.
3. Retain an experienced offshore tax attorney to determine eligibility for the Streamlined Filing Compliance Procedures and whether your actions in failing to file or report require the greater protection from criminal charges and FBAR penalties offered by the Offshore Voluntary Disclosure Program. See post of 5/1*/16 “Comparison Chart: OVDP vs Streamlined Filing Compliance Procedures.” https://the-tax-wars.net/2016/05/
4. The tax attorney retained will prepare your Streamlined non-willful certification statement if he or she determines that it is safe for you to submit returns under the Streamlined Program.
5. Retain an experienced offshore tax preparer to prepare original or amended returns for the non-compliant years of 2013, 2014 and 2015 and e-file with FinCEN original or amended FBARS for 2010 through 2015. (Note that taxpayers residing in the U.S. cannot file delinquent returns under the Streamlined procedures).
6. File your Streamlined submission (unless it is determined that you must enter the OVDP).
7. It usually takes at least a couple of months to complete the tax return preparation, review and non-willful certification for a Streamlined filing and sometimes considerably longer. The tax attorney will conduct a due diligence inquiry to confirm your claim of non-willfulness.
8. Timely file your 2016 return and FBAR in full compliance with the income tax laws together with all required foreign reporting forms.
The accepted definition of willfulness for both criminal and civil penalty purposes is a voluntary and intentional violation of a known legal duty. Thus, willfulness requires both knowledge and a voluntary conscious act to not file or report.
Many offshore taxpayers have been contacted by foreign banks conducting FATCA due diligence inquiries to determine if customers are U.S. citizens or residents. These contacts may put the taxpayer on notice that there are offshore filing requirements to which they must attend. The failure to take corrective action, upon obtaining knowledge of the obligation to file returns, FBARS or other foreign reporting forms, is a fact that may weigh on whether IRS views conduct as non-willful. After knowledge of the tax filing and reporting obligations is obtained, failure to file a timely and correct 2016 income tax return, FBAR and foreign reporting forms, depending on other facts present, may also be viewed as a criminal violation or as conduct supporting the willful civil FBAR penalty.
Criminal willfulness must be proven by the government beyond a reasonable doubt while civil willfulness for the FBAR penalty need only be proven by a preponderance of the evidence (i.e., more than half of the evidence adduced at trial points towards willfulness).
Thus, the wise course of action for those still out of compliance is to address the problem before the 2016 return and FBAR become either delinquent or are incorrectly filed.
Filing returns and making a non-willful certification under the Streamlined program are serious matters that carry great risk if attempted by those who are not well versed in this specialized area of tax law.
© 2017 by Robert S. Steinberg, Esquire
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