Filing your taxes is often a confusing, overwhelming process. For some individuals who mistakenly fail to report certain assets on their tax returns, there are a couple of options available to remedy the situation. To ensure that all IRS requirements are met—and to avoid penalties or other consequences—it is best to seek the advice and guidance of an experienced tax attorney during these procedures.
The Streamlined Filing Compliance Procedures
Many individuals own or have an interest in foreign assets. If these taxpayers fail to report these assets on their tax returns, they could face trouble from the IRS. Therefore, the streamlined filing compliance procedure exists to help these individuals with:
- A streamlined process to file delinquent or amended tax returns;
- Resolving tax and penalty procedures for filing delinquent or amended returns; and
- Resolving penalty and tax obligations.
These streamlined filing compliance procedures were not offered to taxpayers until 2014.
How Do I Know If I Can Use the Streamlined Filing Compliance Procedures?
Specific criteria must be met to utilize the streamlined filing compliance procedures, which are only available for individuals and estates of individuals. Taxpayers who live both inside and outside of the United States are eligible, so long as they remain a United States taxpayer.
First, the taxpayer is required to certify that the failure to report the asset was not intentional—it was simply a mistake or negligence.
In some cases, the IRS launches a civil examination into the individual’s tax returns. Even if the civil examination has nothing to do with the foreign assets, the taxpayer will not be able to use the streamlined filing compliance procedures. Those being criminally investigated by the IRS are also ineligible.
If the taxpayer has filed an amended or delinquent tax return in the past (which also involved foreign financial assets), previous penalties must be paid. The taxpayer must also be eligible for a Social Security Number or an Individual Taxpayer Identification Number. Reduced penalties are possible with streamlined filing compliance procedures.
If the taxpayer is worried that willful conduct may be involved in the failure to report foreign assets, the taxpayer may elect to use the Offshore Voluntary Disclosure Program. The taxpayer should seek legal counsel to assist with this procedure.
The Delinquent International Information Return Procedure
The delinquent international information return procedure is another option for taxpayers who do not necessarily need to use the streamlined filing compliance procedures or the offshore voluntary disclosure program. This program is for those who:
- Have not filed at least one required international information return;
- Have reasonable cause for not filing the information returns in a timely manner;
- Are not being investigated criminally or civilly by the IRS; and
- Have not been contacted by the IRS regarding the delinquent information returns.
The taxpayer must submit a reasonable cause statement for each delinquent information return that is filed. In the reasonable cause statement, the taxpayer is required to certify that entities for which the returns are being filed were not involved in tax evasion.
The delinquent international information return procedure is primarily used by those who do not have to file amended or delinquent tax returns. One primary benefit of using this procedure is that penalties may not be assessed on the foreign information returns, so long as the IRS accepts the information in the taxpayer’s reasonable cause statements.
Hiring a Tax Attorney is Wise in These Situations
Some taxpayers worry that their failure to properly pay taxes will result in civil or criminal liability. To understand all legal options and their possible consequences, you should immediately consult an experienced tax attorney to ensure your returns are filed properly with all of the required information attached.
At RJS Law, We Are Experienced in State and Federal Tax Matters
The tax attorneys at RJS Law have assisted clients with both their California state taxes and federal taxes for years. If you need assistance remedying errors on your taxes, contact us today to schedule a free consultation. We have offices in San Diego, Orange County, and Los Angeles to serve your needs.