March 2010, the Foreign Account Tax Compliance Act (FATCA) was signed into law creating new reporting requirements for offshore assets and accounts. FATCA requires US citizens and US residents to report all offshore assets on Form 8938 with their tax return as well to file Form 114, Report of Foreign Bank and Financial Accounts (FBAR) if the account values surpass certain thresholds. For individual taxpayers that are citizens or US residents, the 8938 threshold is $50,000 of total offshore assets on the last day of the year or over $75,000 at any point during the year ($100,000 and $150,000 for married filing jointly). Taxpayers must file the Form 114 (FBAR form) if their aggregate total of all foreign accounts exceeds $10,000. It should be noted that these requirements apply if you have a financial interest or signature authority over a foreign financial account. Please also note that effective in 2017, taxpayers will have to file Form 114 by April 15th, with a 6 month extension available. The previous June 30th deadline is no longer applicable.
In recent years the IRS has been cracking down on foreign reporting in the United States. Prosecution and large penalties are charged to individuals who willfully avoid filing the required FATCA forms. The issue many US citizens and residents have come across is lack of knowledge of the FATCA reporting requirements. To help alleviate the penalties imposed on taxpayers for not filing these forms on a non-willful basis, the IRS has enacted several procedures to allow taxpayers to report their accounts for prior years with marginal to no penalization. The most common procedure is the Streamline Voluntary Disclosure Program.
The Streamline program is separated into two categories:
- Streamlined Domestic Offshore Procedures
- Streamlined Foreign Offshore Procedures
The procedures are specifically for taxpayers who are able to certify that they did not file the required FATCA forms due to negligence, inadvertence, mistake, or misunderstanding of the requirements.
The Streamline Domestic Offshore Procedures is designed for US citizens residing within the US. Taxpayers are required to file the most recent 3 years of amended or delinquent tax returns recording the foreign account information not previously included on any filed returns, and 6 years of FBARs. Taxpayers are responsible for paying any additional tax due on the new returns filed including interest. In addition, participants of the Streamlined Domestic Offshore Procedures are required to pay a 5% penalty on the highest aggregate balance recorded at year-end over the last six years. For example, if the highest aggregate balance at year-end over the last six years was $50,000, a payment of $2,500 would be due under this program.
The Streamline Foreign Offshore Procedures is designed for US citizens residing outside the US. Participants in the Streamlined Foreign Procedures program follow the same filing requirements as the Streamlined Domestic Offshore Procedures. Similar to the Domestic Procedures, taxpayers need to pay any additional tax due on the three years of returns filed. However, under the Foreign Procedures, taxpayers are not subject to interest or late filing penalties, nor are they required to pay the 5% penalty on the FBAR account balances. These procedures are particularly helpful to US Citizens residing outside of the US that were unaware of their requirement to file tax returns.
Please contact us should you have any questions regarding foreign reporting or the streamline voluntary disclosure programs.