Can Streamlined Filing Procedures Be Used During a Tax Audit Related to Offshore Assets? | CA

 Posted on September 24,2024 in Tax Audits

Taxpayers who own assets in other countries must meet certain requirements when reporting these assets to the IRS and paying any required taxes. The process of foreign investment reporting can be complex, and taxpayers who own multiple types of complex assets may not realize that they have failed to comply with their requirements.

To help taxpayers come into compliance, the IRS offers streamlined filing procedures (commonly known as "streamlined compliance") for those who have unintentionally failed to report offshore assets. However, taxpayers may be uncertain about whether these streamlined procedures can be used if the IRS has already initiated a tax audit.

An experienced tax attorney can help taxpayers determine the best course of action when dealing with offshore tax issues and IRS audits. By receiving legal help and representation, taxpayers can take steps to meet their requirements while reducing their potential tax penalties.

What Are the Streamlined Filing Procedures?

Streamlined filing compliance procedures allow eligible taxpayers to disclose their offshore assets and correct past tax returns without facing the harsh penalties typically associated with non-compliance. This program is designed for taxpayers who have unintentionally failed to report foreign accounts or income due to non-willful conduct. The streamlined procedures provide a way to resolve tax obligations while significantly reducing penalties.

Key Features of Streamlined Procedures

• Non-Willful Requirement: Taxpayers must certify that their failure to comply was due to non-willful conduct. This means the taxpayer did not intentionally hide assets or evade taxes.

• Simplified Filing: Taxpayers with filing obligations must file 3 years of amended tax returns and 6 years of Foreign Bank Account Reports (FBARs). Any unpaid taxes related to these filings must also be paid.

• Reduced Penalties: U.S. residents who use the streamlined domestic offshore procedures will usually be required to pay a 5 percent penalty on the highest value of their undisclosed offshore assets during the 6-year period. Non-U.S. residents who use the streamlined foreign offshore procedures may be eligible for a waiver of all penalties.

These procedures are a beneficial option for taxpayers who want to correct past mistakes, but they come with specific eligibility requirements.

Can Streamlined Filing Procedures Be Used During a Tax Audit?

Unfortunately, taxpayers are not eligible for the streamlined filing procedures if the IRS has already initiated a tax audit. This rule applies even if the audit is unrelated to the taxpayer’s offshore assets. Once the IRS begins a tax audit, the streamlined procedures are no longer an option, leaving the taxpayer with limited ways to resolve the issue.

If a taxpayer is under audit, and the IRS discovers offshore assets that were not reported, the taxpayer may face substantial penalties and possibly criminal prosecution if the failure to disclose was willful. In these cases, working with an experienced tax attorney is critical to ensure that a taxpayer can navigate the audit process and minimize their potential consequences.

What Are the Options If the IRS Has Initiated a Tax Audit?

Although the streamlined procedures are unavailable during an audit, taxpayers still have options to address offshore tax compliance issues. Below are some possible steps to take if you are already under IRS audit:

Reasonable Cause Argument

In some cases, taxpayers may be able to argue that they had reasonable cause for failing to report offshore accounts or income. This argument involves showing that the taxpayer made a good-faith effort to comply with the law but was unaware of their reporting requirements. Our skilled tax attorney can help build a strong case and work to provide the necessary information to the IRS while taking steps to minimize penalties.

Audit Defense and Negotiation

If the IRS has discovered unreported foreign assets during an audit, our tax attorney can assist with the audit defense process. This involves working with the IRS to provide documentation, reduce the potential impact of any findings, and negotiate appropriate penalties. While this process can be complex, it is often the best approach for minimizing financial losses while avoiding criminal charges.

Contact Our San Jose Tax Audit Attorney

Whether you are considering streamlined filing procedures or facing an IRS audit related to offshore assets, it is important to act quickly and consult with a tax attorney. The San Jose, CA tax lawyer at John D. Teter Law Offices can help you understand your options, and we will work with you to navigate the audit process and help minimize the penalties you may be required to pay. Call 408-866-1810 today to set up a consultation and learn how we can help you resolve your offshore tax issues.