The Risks of Streamlined Disclosure

Offshore Account Update

Posted on August 31, 2017 |

Many offshore investors have failed to comply with requirements  that they alert the U.S. government to their offshore funds, including requirements to file an annual Report of Foreign Bank and Financial Accounts. The U.S. government has been aggressively cracking down on these investors in recent years, including entering into deals with foreign banks whereby those foreign financial institutions turn over information on accountholders in exchange for avoiding prosecution for facilitating tax evasion.

Offshore investors face serious risks of an IRS investigation and resulting civil and criminal penalties as a result of the IRS crackdown.  Some of those offshore investors have chosen to use a procedure called streamlined filing to try to resolve their problems with the IRS while limiting the penalties that could potentially be imposed if they come under IRS investigation without having first disclosed their accounts.

Streamlined filing is allowed through a process created by the IRS and it involves submitting amended tax returns, filing FBARs which were missing for past years, paying back taxes, and paying fines and penalties.  Unfortunately, there are serious risks associated with streamlined disclosures that some taxpayers do not fully understand.

If you are considering making a streamlined disclosure to the IRS, you should consult with a New Jersey tax attorney before you take action. Your attorney can help you to understand the risks of this disclosure and can assist you  in determining if you should make a streamlined filing, participate in an Offshore Voluntary Disclosure Program created by the IRS, or take other steps to try to protect yourself from penalties you could face.

Risks of Streamlined Disclosure

Offshore investors who failed to report their foreign financial accounts may be eligible for streamlined disclosure only in the event their failure to make reports of their accounts was non-willful. In other words, if you intentionally concealed your accounts for the purposes of avoiding U.S. taxes, you are not eligible for streamlined disclosure or the limited penalties that come with it.

When you submit your streamlined disclosure, you'll have to attest under penalty of perjury that you didn't know the law and/or were simply negligent in not filing your FBARs and disclosing your accounts. But, even if you claim you didn't disobey the law on purpose, the IRS may decide you did and that you aren't a non-willful violator. Certain red flags make this much more likely, including withdrawing all your account funds in cash, moving money among different offshore institutions, or holding your accounts in the name of an offshore corporation or other offshore entity.

If the IRS looks at your streamlined filings and the information available about your accounts and determines you aren't a non-willful violator, you have a big problem. The IRS has all of your information, you aren't going to be eligible for the limited penalties that streamlined disclosure provides, you could face substantial civil penalties, and you could even be prosecuted criminally – both for the failure to follow tax rules and for any false statements made on your streamlined disclosure.

The risks are obviously substantial, so you should be certain you speak with Kevin Thorn, a New Jersey tax attorney when you make a decision about whether a streamlined filing is right for you.


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