Monday, December 28, 2015

Disclosing Foreign Accounts -- Streamlined Foreign Offshore Procedures (SFOP) | Bethesda Tax Lawyer

As I previously discussed, in addition to the OVDP, the IRS offers the Streamlined Filing Compliance Procedures. These procedures consist of two programs, one for US tax residents/citizens living in the United States (Streamlined Domestic Offshore Procedures), and a separate program for US tax residents living abroad (the Streamlined Foreign Offshore Procedures, SFOP).  This post will discuss the foreign procedures. 

The requirements for the SFOP are very similar to those for the SDOP. The two primary differences are, first the offshore penalty is zero, and second the IRS has a non-residency requirement. 

Eligibility for SFOP

To enter the SFOP, the IRS requires that a taxpayer: 
  1. Non-residency --during the previous three tax years the individual has lived outside the United States for 330 or more days and did not maintain an abode in the USA
  2. Has filed tax returns for the previous three years; 
  3. Has not reported income from foreign accounts, assets, entities, etc.;
  4. Has not reported the said foreign assets on the FBAR and other required informational federal tax returns; and
  5. She must certify that the failure to report these assets was due to non-willful conduct. 
The general concern with entering the SFOP is that the taxpayer must certify under the penalties of perjury that her non-reporting of foreign assets was non-willful. Additionally, entrance into the SFOP does not provide immunity from criminal prosecution. 

Willfulness

Entry into the SFOP requires taxpayer certification, under the penalties of perjury, that the failure to report foreign accounts/assets was due to non-willful behavior. The IRS defines non-willful conduct as "conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law." While this definition seems pretty straight forward, it is very nuanced. Moreover, the IRS has intentionally not provided additional guidance on how to interpret the definition, nor has it provided examples of this behavior.  

Another complication to this definition is that it does not address willful blindness.  Willful blindness in the simplest of terms means that a taxpayer should have known to research the filing requirements, but failed to make this inquiry. The test for willfulness is a very fact and circumstances based analysis requiring careful judgment. I will write a separate post about willfulness in a few weeks.      


Required Documents for Entry into the SFOP

  1. Amended tax returns for the three most recent tax years that includes any unreported foreign income and unfiled informational returns; 
  2. The six previous years of FBARs; 
  3. Form 14654; Certification by U.S. Person Residing in the United States for Streamlined Domestic Offshore Procedures; and
  4. A check for any unpaid taxes and interest from the amended returns and a separate check for the offshore penalty. 

Penalties

  1. 0% penalty based upon the year-end balances of the foreign accounts and assets. 
  2. Unlike the OVDP, the SFOP does not assess penalties on the unpaid taxes.

Dealing with offshore accounts can be a complicated matter, and not selecting the correct disclosure method could have significant long-term repercussions on penalties.  For a free consultation on these and other tax-related matters, please contact The Law Offices of Aaron P. Richter, a Bethesda-based firm with expertise in Tax Controversy, Business Formation, Estate Planning, and Tax Preparation.

Tuesday, December 15, 2015

The FAST Act May Slow Your Travel Plans if You Have Tax Debt | Bethesda Tax Lawyer

The recently enacted Fixing America's Surface Transportation Act (FAST) was signed into law on December 4, 2015.  The FAST Act includes a few provisions that are relevant to taxpayers if they owe back taxes.  The two provisions that will affect the most people are, first, that the IRS can request that the Secretary of State revoke or deny a passport for individuals with a "seriously delinquent tax debt."  Second, the bill requires the IRS to hire private debt collections for certain types of debt. 

Under the section, a seriously delinquent tax debt is defined as $50,000 in assessed taxes, interest, and penalties for which a lien has been filed.  The bill does provide for exceptions to the international travel ban if the debts are being paid in a timely manner (e.g. the taxpayer has requested an installment agreement, offer-in-compromise, or innocent spouse relief).  Further, the taxpayer may file suit in the tax court or district court to determine whether the certification of the seriously delinquent was erroneous.  

If you have questions about the FAST act you should contact a tax professional.  For a free consultation on these and other tax-related matters, please contact The Law Offices of Aaron P. Richter, a Bethesda-based firm with expertise in Tax Controversy, Business Formation, Estate Planning, and Tax Preparation.