Introduction: Streamlined Procedure

As an attorney specializing in international tax law, it is crucial to understand the consequences and available options for individuals who have failed to file their Foreign Bank and Financial Accounts (FBAR) reports. Failure to comply with FBAR reporting requirements may result in severe penalties. Fortunately, the Internal Revenue Service (IRS) offers a potential solution for Taxpayers who failed to comply because of a non-willful through the Streamlined Filing Compliance Procedures (SFCP). In this blog post, we will delve into the implications of not filing an FBAR and explore the option of utilizing the Streamlined Procedure to correct the situation.

Consequences of Not Filing an FBAR:

Penalties: The penalties for not filing an FBAR can be substantial. For willful violations, the penalty may reach up to 50% of the highest aggregate balance of the undisclosed foreign accounts. Non-willful violations may lead to penalties of up to $10,000 per account, per year.

Criminal Prosecution: In severe cases involving intentional and willful non-compliance, criminal prosecution may be pursued, resulting in potential fines and imprisonment.

Limited Options for Late Filers: Taxpayers who discover their failure to file an FBAR after the filing deadline have limited options for rectifying the situation. However, the Streamlined Filing Compliance Procedures offer an avenue for eligible taxpayers to come into compliance without facing harsh penalties.

Overview of Streamlined Filing Compliance Procedures:

The IRS introduced the Streamlined Filing Compliance Procedures to provide a means for non-compliant taxpayers to rectify their FBAR reporting obligations. Here are the key points to consider:

Streamlined Domestic Offshore Procedures (SDOP): The SDOP is available to U.S. residents who have failed to report foreign financial assets and income. To qualify, taxpayers must certify their non-compliance was non-willful. Under the SDOP, eligible taxpayers are required to file amended tax returns for the past three years and FBAR reports for the past six years.

Streamlined Foreign Offshore Procedures (SFOP): The SFOP is designed for taxpayers residing outside the United States who did not comply with US tax laws because of a non-willful conduct. Similar to the SDOP, eligible taxpayers must file amended tax returns for the past three years and submit FBAR reports for the previous six years. They must also include a certification statement regarding their non-willful conduct.

Advantages of Utilizing the Streamlined Filing Compliance Procedures:

Mitigation of Penalties: One of the key advantages of the Streamlined Procedure is the potential for reduced penalties. Under the SDOP, taxpayers are subject to a miscellaneous offshore penalty of 5% of the highest aggregate balance of the undisclosed foreign accounts. The SFOP does not impose any penalties on eligible taxpayers.

Avoidance of Criminal Prosecution: By voluntarily participating in the Streamlined Procedure, taxpayers mitigate the risk of criminal prosecution for non-willful FBAR violations.

Pathway to Compliance: The Streamlined Procedure provides a structured and straightforward process for bringing FBAR reporting up to date, enabling taxpayers to achieve compliance, and provide peace of mind.

Consulting with an International Tax Attorney:

Navigating the complexities of the Streamlined Filing Compliance Procedures and addressing FBAR reporting obligations requires expert guidance. Consulting with an experienced and knowledgeable international tax attorney is crucial to ensure accurate reporting, proper completion of mandatory forms, and overall compliance with requirements. An international tax attorney can provide personalized advice tailored to your specific circumstances, helping you make informed decisions and avoid potential pitfalls.

Conclusion:

Failing to file an FBAR can lead to significant penalties and potential criminal consequences. However, the Streamlined Filing Compliance Procedures offer an opportunity for non-compliant taxpayers to rectify their reporting obligations and avoid severe penalties. If you have questions or concerns regarding the proper disclosure and reporting of your overseas holdings, please call the experienced RJS LAW international tax attorneys at 619-595-1655 or contact us via the web at RJS LAW to schedule a free consultation.

Written by Andrea Cisneros Valdez, Esq., LL.M.

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