If you have companies or financial accounts in a foreign country, or you are an entrepreneur residing in a foreign country, and you may have been delinquent on your tax filings or payment to the IRS, you need to know the following to protect yourself and your assets:

• It is a violation of the law to have offshore bank accounts and not report FBAR;

• Foreign banks are required to report accounts held by US taxpayers to the IRS, per the IGA and FATCA rules;

• The IRS can seize your accounts and bring criminal charges against you. You may receive penalties up to $500,000 and 10 years in prison;

• If you own foreign companies or hold stocks of foreign companies, you may be required to report your offshore companies, even if your startup companies have not made any profit.  Your risk of being caught by the IRS grows greater as your company continues fundraising and advancing towards an IPO or sale, as more and more financial institutions are reporting your information to the IRS under FATCA;

• ​We urge you to learn more about FBAR, foreign bank accounts, companies and stocks, and FATCA by reading our posts on Reporting Foreign Financial Accounts and Companies. 
  

The IRS is giving you opportunities to declare your bank accounts or offshore companies without criminal prosecution through its Offshore Voluntary Disclosure Programs.

IRS Offshore Streamlined Procedures

If you have failed to report your foreign assets and/or foreign income, then you need to decide how you can come into compliance with the IRS at the lowest cost possible.  Of the several voluntary disclosure programs permissible by the IRS, the most utilized in recent years is the Streamlined Procedures implemented in 2014.  In the Streamlined Procedures, you need to file delinquent FBARs and tax returns with a non-willful certification. The non-willful certification is intended to demonstrate your past violations of the tax rules occurred by mistake or due to negligence, as opposed to willful or intentional conduct. Most of our clients qualify for the Streamlined Procedures.

The Streamlined Procedures is a prescribed, step-by-step process. The cornerstone of the process is the non-willful certification and the evidence supporting such certification. In the process the taxpayer needs to commit to full disclose to the IRS including all offshore companies, and all foreign bank accounts and assets. The taxpayer needs to work closely with the CPA to bring forth sufficient evidence to support the non-willful certification.  In addition the Streamlined Procedures require the submission of 3 amended most recent tax returns and 6 years of most recent FBAR filings.

The Streamlined Procedures usually come with a 5% penalty. In some cases such as true offshore residence (if you reside outside of the US greater than certain number of days in a year), you may become exempt from the 5% penalty.  Even if you are not exempt from the 5% penalty, in many cases the penalty seems to be a no-brainer compared to the hefty monetary penalty or harsh criminal penalty if you are caught by the IRS someday.

There are a few other IRS offshore disclosure programs such as a traditional offshore violation delinquent program introduced in 2009, and the Delinquent Information Filing Program. Fewer clients qualify for those programs. When you consult with us, we will consider all available options and help you select the procedures that best fit your circumstances.  Again any of these forgiveness programs are considerably better than ignoring your ongoing violations entirely.  You can find more information at the IRS site Streamlined Filing Compliance Procedures | Internal Revenue Service (irs.gov).

Offshore Disclosure Success Stories

A.  US Entrepreneur in China 

A biotech entrepreneur born in China became a naturalized US citizen prior to the 2000’s.  Later he returned to China to start his own business. Through his decades of work in China, he started up several companies, one of which became successful and went public on the Chinese stock market.  Over the years he kept up with tax filings and paid taxes to the IRS. However, he missed filing for his Chinese companies. In more recent years he came to Easton for consultation.  Easton advised him to disclose his Chinese assets by entering the IRS Streamlined Procedures.  After careful consideration the client decided to follow our advice. Easton helped him declare his offshore companies (all private companies and the listed company for full disclosure), assets (in China and in the US), and income from his Chinese operations via the Streamlined Procedures.  IRS also accepted his non-willful certification that his past violations were due to unawareness of the more recent tax laws as apposed to intentional conduct.

In addition to his successful return to compliance, the client received a few other benefits via this disclosure: 1) as he resided outside of the US while having those violations, he was exempt from the 5% penalty;  2) he only needed to submit the most recent 3 years of tax filings, although he was delinquent for over 10 years. His prior years of missed filings were forgiven; 3) in his case he only needed to repay minimal taxes as his startup companies operated in the negative for many years.

Easton has helped many cross-border entrepreneurs with offshore voluntary disclosure services and produced favorable results. Call us for a free consultation.

B.  Immigrant Family with Assets in Taiwan 

A family of Taiwanese origin discovered that their bank accounts and real estate in Taiwan had never been declared to the IRS, since they became naturalized US citizens.  The total foreign assets amounted to roughly $1 million.  If they don't come forward to declare, they could face fines of up to $500,000 as well as criminal penalties.  We helped the client voluntarily disclose to the IRS and successfully proved that the underreporting was due to the newcomer's unknowingness.  Because they lived in the US for many years after immigration, as opposed to residing outside of the US, they had to take a 5% penalty for ~$50,000. You can tell this fine is lenient compared to the overall underreported assets.

We have helped many immigrant families declare their overseas assets. There are many clients who have declared in a timely manner per our advisory and often have avoided fines.