San Jose Tax Attorney for Streamlined Compliance

Experienced Tax Lawyer Serving Silicon Valley, California, and Throughout the U.S.

U.S. taxpayers who have foreign income, hold foreign bank accounts, or own certain types of foreign assets (and meet other thresholds) are required to report such information under the 1970 Bank Secrecy Act. These U.S. taxpayers are annually required to report their foreign financial assets on IRS Form 114 (Foreign Bank Account Report, commonly called FBAR). Additionally, U.S. taxpayers are required to report foreign financial holdings with their annual tax return on IRS Form 8938 (Statement of Specified Foreign Financial Assets). Since the Foreign Account Transaction Compliance Act (FATCA) was fully implemented, over 100 countries and tens of thousands of foreign financial institutions have agreed to report information on U.S. account holders to the IRS. Failure to disclose foreign assets can result in extremely heavy fines, as well as criminal action. The IRS has introduced streamlined disclosure procedures to help taxpayers comply with FBAR, Bank Secrecy Act, and foreign financial requirements. The procedures are still complex, however, and it is best to work with a skilled tax attorney to ensure everything goes smoothly.

At John D. Teter Law Offices, we have over three decades of experience helping clients who are involved with serious tax challenges in the San Francisco Bay Area and throughout the world. Attorney Teter has an in-depth knowledge of foreign investment and asset reporting requirements, the most recent changes in this area of federal tax law, and how these changes apply to U.S. taxpayers and their estates. If you have foreign income, bank accounts, investments, or other types of assets, he can sit down with you to explain your options and review the streamlined compliance requirements to determine if you qualify. All consultations are kept confidential, and anything discussed falls under attorney-client privilege.

What is Streamlined Compliance?

U.S. citizens, legal permanent residents (LPRs), and foreign nationals who meet the "substantial presence" test (spent a substantial amount of time in the U.S.) and have undisclosed foreign income, bank accounts, investments, or assets from previous tax years, could achieve compliance by entering the Offshore Voluntary Disclosure Program (OVDP) before that program was closed on September 28, 2018. That program involved onerous filing requirements going back several years and fines as high as 50% of the maximum value of foreign accounts. The OVDP program provided protection from prosecution for individuals whose failure to disclose was willful; meaning they knew, or should have known, of the reporting requirements and elected not to report this information.

Those whose conduct can be deemed negligent or non-willful (meaning they did not know of the reporting requirement) may now be eligible to participate in streamlined filing compliance procedures. Under streamlined compliance, the filing requirements are less burdensome and penalties can be significantly reduced or eliminated (depending on which program you qualify for). There are two types of streamlined compliance: streamlined domestic or streamlined foreign offshore procedures. The programs are very similar in that both require the disclosure of foreign bank accounts, income, investments, and other assets, depending on whether or not the individual meets the definition of a domestic (U.S.) resident or a foreign resident. Participants in the streamlined compliance procedure must rely on their statement of nonwillfulness to reduce their risk of criminal prosecution. John D. Teter Law Offices can fully explain the alternatives and how they apply to your facts.

Domestic Streamlined Compliance

Streamlined domestic offshore procedures are for taxpayers who reside in the U.S. and need to get into compliance with all of the U.S. reporting requirements. If you resided in the United States (or did not reside outside of the U.S. for at least 330 days) during one of the previous three tax years and your failure to report was non-willful, you may qualify for the domestic program. Compliance with streamlined domestic offshore procedures involves:

• Filing three years of amended tax returns;
• Filing Foreign Bank Reports (FBARs) for the past six years;
• Filing all other required forms;
• Disclosing the balances of each unreported foreign account as of December 31 of each of the past six years;
• Paying all outstanding taxes owed, interest, and a penalty of 5% of the highest annual aggregate account value.

Foreign Streamlined Compliance

Streamlined foreign offshore procedures are for taxpayers who meet the definition of a non-U.S. resident. To meet this definition as a U.S. citizen or LPR, you must have resided outside the United States for at least one of the previous three tax years. This means that in at least one of the previous three tax years, you have spent at least 330 days outside (or less than 35 days inside) the United States. For non-U.S. citizens and non-LPRs, you must not have met the "substantial presence" test for each of the past three years. Foreign streamlined compliance has nearly the same requirements as the domestic program, with one notable exception. Under the streamlined foreign offshore procedures, the 5% penalty is waived, making the foreign program the preferred option for those who qualify.

The IRS is zeroing in on U.S. taxpayers who they believe are hiding foreign income and assets. With nearly every country in the world and the vast majority of foreign financial institutions now voluntarily reporting this information to the IRS, you cannot afford to be out of compliance, because there is a good chance you will eventually be discovered. If you need help getting into compliance with foreign investment or asset reporting and want to know if you qualify for streamlined compliance, contact our office at 408-866-1810 for a consultation with Attorney John D. Teter.