The Importance of US Disclosure for Expats

To assist ex-pats in becoming compliant with their tax and disclosure obligations, the IRS has established several programs designed to encourage voluntary disclosure and reduce penalties. Understanding these programs can help expats who have fallen behind on their filing requirements.

1: Streamlined Filing Compliance Procedures: This program is designed for taxpayers who can certify that their failure to report all income, pay all tax, and submit all required information returns, including FBARs, was due to non-willful conduct. It offers:

• Streamlined Foreign Offshore Procedures (SFOP): For US taxpayers residing outside the US who have not filed one or more required international information returns or have failed to report income from a foreign financial asset.
•  Streamlined Domestic Offshore Procedures (SDOP): For US taxpayers residing within the US who need to comply with foreign asset reporting requirements.

There is no penalty when a taxpayer is accepted into the SFOP. When a taxpayer is accepted into the SDOP, the program has a 5% penalty on the maximum value of unreported foreign financial assets.

2. Offshore Voluntary Disclosure Program (OVDP): Although the traditional OVDP closed in 2018, the IRS occasionally offers similar programs to allow taxpayers with undisclosed offshore accounts and assets to come into compliance. These programs typically involve higher penalties than the streamlined procedures but offer protection from criminal prosecution.

3. Delinquent FBAR Submission Procedures: Taxpayers who have not filed a required FBAR but are not facing any civil examination or criminal investigation by the IRS can use these procedures. The IRS will not impose a penalty for the failure to file the delinquent FBARs if where a taxpayer has properly reported on U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs, and they have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.

4. Delinquent International Information Return Submission Procedures: For taxpayers who have reasonable cause for not filing certain information returns, such as Form 5471 (Information Return of US Persons With Respect to Certain Foreign Corporations) or Form 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts). Penalties may be waived if all required returns are filed through this program, although the IRS reserves the right to launch a full audit.