How Can I Maintain Foreign Tax Compliance with the IRS?

 Posted on August 19, 2020 in Taxation Law

U.S. taxpayers are required to report all of the income they earn and pay applicable taxes, including income earned from foreign investments and offshore accounts. The requirements related to these types of accounts can often be complex. Taxpayers who are not compliant may be audited, and they could face penalties that include civil fines or criminal prosecution. 

Foreign tax compliance has become more difficult since the end of the Offshore Voluntary Disclosure Program (OVDP). This program, which was discontinued in September 2018, allowed taxpayers to avoid penalties by disclosing their foreign assets and paying taxes due. Since the end of the OVDP, some taxpayers who had previously been compliant may be facing additional scrutiny and potential penalties from the IRS. The IRS’s Streamlined Domestic Offshore Procedures (SDOP) and Streamlined Foreign Offshore Procedures (SFOP) programs are still available for taxpayers able to make sworn nonwillfulness statements and file the required forms and make the required payment.

“Soft Letters” and Offshore Tax Enforcement

As part of its campaign to enforce compliance with foreign tax reporting, the IRS has sent letters to some taxpayers who had previously participated in the OVDP, notifying them that they may no longer be in compliance. These “soft letters” will typically specify which years the IRS is looking at regarding compliance, as well as the forms that may not have been received, including Forms 3520, 5471, and 8938.

A taxpayer will usually have two options after receiving a soft letter. The first is to file any delinquent tax returns or forms. In these cases, a taxpayer may be subject to penalties, unless he or she can show that the noncompliance occurred because of reasonable cause rather than willful neglect. The second option is for the taxpayer to make a statement that he or she has remained compliant with all reporting and tax requirements or an explanation of the actions taken to become compliant, along with any relevant documents or other information demonstrating compliance. Failure to respond to a soft letter by the due date provided within the letter may result in an examination/audit of the taxpayer’s tax returns.

Contact Our San Jose, CA Foreign Tax Compliance Attorney

If you have received a soft letter from the IRS related to offshore tax compliance or recognize the need for offshore tax compliance, John T. Teter Law Offices can provide legal guidance for your situation. We can review your offshore assets to determine your reporting requirements, and we will assist you in providing a response to the IRS. We can also help with SDOP or SFOP submissions and nonwillfullness statements, review the facts and circumstances of your case, and advise you about the actions that may be taken to become compliant. We will work with you and your accountant to determine your best options and help you take the right steps to avoid serious penalties. We can also connect you confidentially with a CPA to protect your privacy and complete tax returns. Contact our San Jose, CA offshore tax lawyer today at 408-866-1810.

Sources:

https://www.irs.gov/compliance/criminal-investigation/irs-criminal-investigation-voluntary-disclosure-practice

https://www.irs.gov/businesses/corporations/lbi-active-campaigns