The Internal Revenue Service – IRS – is the revenue service department of The United States Federal Government. The government agency works under the Department of Treasury and is under the command of Commissioner of Internal Revenue who is appointed by the President of United States for a term of 5 years. The duties of IRS in majority include helping taxpayers and pursue unresolved tax issues and tax fraudulent tax filing.
In recent years, the IRS also controls the ability when the taxpayer applies for a US passport or to renew one. Once a delinquent is detected (either for taxes unpaid or for a tax form not filed), the taxpayer can face the possibility of getting rejected for US passport application.
IRS offers limited time opportunity to specified taxpayers to pay a defined amount in lieu of forgiveness and not charging any criminal prosecution of not paying defined tax. Internal Revenue Service offers various programs under its tax amnesty.
1. Offshore Voluntary Disclosure Programs:
Is a voluntary disclosure program for taxpayers who have intentionally hidden information related to their assets in foreign countries and have not included them while paying taxes, The program is designed in a way that it offers an opportunity to taxpayers to save themselves from potential criminal prosecution for willfully hiding their assets and not filing their true tax value. There are pros and cons for this program. Once the taxpayer gets accepted into the program, files the delinquent tax forms, pays the delinquent taxes and penalties/interests and pays the FBAR penalties, the IRS will assign specific agent to handle the case and once it’s reviewed and approved, a final acceptance letter will be issued and the taxpayer is formally ‘off the hook’. However, the downside is of course, the number of years required to ‘look back’ for the delinquent filing is more than other amnesty programs and the FBAR penalty can be high (can be up to 50% of the delinquent bank account balance).
2. Streamlined filing compliance procedure:
Apart from offshore voluntary disclosure programs, IRS also offers streamlined filing compliance procedure for both US taxpayers residing in the United States and for the taxpayers residing outside the United States, The streamlined filing compliance programs are for those US taxpayers who certify that their failure to report foreign assets was not willful and are ready to pay deemed taxes as per the calculation. In such cases the Streamlined filing compliance procedure offers:
- An easy procedure for filing the delinquent returns, and
- Terms for resolving their tax and penalty procedure and obligations.
Streamlined filing compliance procedure is available for both, US taxpayers residing in the country and residing outside country but to qualify for the taxpayer must fulfill eligibility criteria. The main difference between these two Streamlined procedures is that for taxpayers living abroad, they will have no FBAR penalty (on the delinquent bank account reporting) and there will be a 5% for taxpayers living within the U.S. (with a few exceptions).
Streamlined Domestic Offshore Programs:-
To be able to file tax under the Streamlined Domestic Offshore Program one must fulfill the eligibility criterion that says:
In addition to meeting the general eligibility criteria for tax paying,
Must have previously filed US tax for recent 3 years for which the tax due date has passed.
Must fail to meet the applicable non-residency requirement
The failures in reporting must be a result of negligence, mistake, inadvertence, or conduct to able to present mistakes to be a result of good faith misunderstanding the requirements of the law.
Streamlined Foreign Offshore Programs:
To be able to file tax under the Streamlined Foreign Offshore Program one must fulfill the eligibility criterion that says:
In addition to meeting the general eligibility criteria for tax paying,
Should meet the applicable non-residency requirements
Have failed to report income from foreign financial assets and may have failed to file the FBAR in respect to a foreign financial account, that may present that mistake happened from non-willful conduct.
3. Delinquent FBAR Submission Procedures:
Taxpayers who do not need to use OVDP or the Streamlined Filing Compliance Procedures to file amended tax returns to pay additional tax, but who:
- Have not filed the required Report of Foreign Bank and Financial Accounts to the FBAR.
- Are not under a criminal investigation by the IRS
- And have not already been contacted by the IRS about income tax examination or the delinquent FBARs
Should file the delinquent FBARs according to the FBAR instructions. The IRS will not impose any penalties if the taxpayer has properly reported US tax returns, paid all the tax, the income from foreign accounts have been reported to FBARs and if the taxpayer is not contacted previously regarding any income tax examination.
4. Delinquent International Information Return Submission Procedures:
Taxpayers who do not need to file amended additional tax using OVDP or the streamlined filing compliance procedures but:
- Have not filed the required international information,
- Have a cause for not being able to file the information returns before due date,
- And are not under any criminal investigation by the IRS, and
- Have not already been contacted by the IRS about the delinquent information returns
Should file a delinquent information return with all necessary facts and the reason for not being able to file the facts due date, with the reasonable fact taxpayer must also certify that any entity for which the returns are filed are not engaged in tax evasion activities. Under this program, a reasonable cause letter is required to explain the failure in reporting and the letter is required to be attached to each of the delinquent tax return when filed.
How It Affects You:
The IRS has pointed several cases of genuine mistakes in tax filing and came up with various Tax Amnesty programs that will offer a limited time opportunity to all the taxpayers who comply with the eligibility criteria to pay the additional tax without being imposed of any penalty or tax-related criminal prosecution. We have years of experience helping clients assess their situation and recommend the suitable program to go under. Please feel free to contact us for a free consultation today.
