For US citizens who have foreign income which has not been disclosed the IRS has two different routes to get back to tax compliance.
1 – Living in the US – Streamlined Domestic Offshore Procedures
If you spent 35 days or more in the US for each of the last 3 tax years, then you will need to use the domestic offshore route.
Although taxpayers residing in the United States can still benefit from the protection of the streamlined compliance procedures, there is a potential 5% penalty if you have funds in foreign financial accounts that have not been declared to the US Treasury.
However, you will not be subject to accuracy-related penalties, information return penalties, or FBAR penalties. FBAR penalties (for your foreign accounts) alone are $10,000 per year.
You will file the documents listed in part 3 below.
2 – Living Outside the US – Streamlined Foreign Offshore Procedures
In contrast to the domestic offshore procedure, there is no 5% penalty for not reporting your foreign financial assets.
If you can use this route, it offers more protection and enables you to catch up with your US tax returns without penalties.
We’ll go through the facts and circumstances and the documents that you need to file below.
3 – Documents to File for the Streamlined Filing Compliance Procedures
- You will need to file amended returns or new tax returns (if you haven’t been filing) for the last 3 years. Your new and amended tax returns will need to report worldwide income (on the form 1040) – you can claim a foreign tax credit or use the foreign earned income exclusion to stop US tax on income from overseas. You may also be able to use a tax treaty if your home country has an agreement with the US.
- There is a statement to be filed explain why you have not filed so far, or you need to amend your tax returns. For new returns, form 14653 is used to give the reasons why you have not filed returns – the most common reason is that you were not aware that you still had to file tax returns after you left the US. Living in the US, using the domestic procedure, you will use form 14654, again providing a statement why foreign income had not been disclosed. Really the IRS are looking for non-willful conduct, which is that you didn’t deliberatley try to avoid US tax and that your conduct was due to negligence or a miss-understanding of the tax rules.
- The final part is disclose your foreign account balances. Fincen form 114, also known as FBARs (Foreign Bank Account Reporting), should be filed each year. If you haven’t been filing, you will need to file for the last 6 years of FBAR. Within the tax returns, there is a similar form (form 8938), that may also need to be submitted for your foreign accounts.
4 – Offshore Voluntary Disclosure Program
You may read about or be advised to use the offshore voluntary disclosure program. The IRS has now closed that route and so you can see if you can use the domestic or foreign streamlined procedures above.
If you are a little concerned about issues related to tax and any penalties that you may have been faced with, it is important to use the streamlined filing procedure. We feel that this procedure will help you get up-to-date, and will enable you to give the IRS the correct information which will help with FBARs. It will also enable you to continue filing your tax return and other FBARs.
Bambridge Accountants is a company that has a lot of experience in helping citizens, aswell as US expats, file their overdue tax returns as quickly as possible. They offer a fee which is fixed, so there will be no big bills to contend with.
· Give them a call on +44 (0)20 3797 1432
· Or email them at [email protected]
· They have offices in both London and New York, if you want to meet in person.
· Bambridge Accountants take security very seriously. They make use of a document portal, which is completely secure. This will allow you to keep your uploaded documents safe. They have clients all around the world, so it is possible to work with them remotely.
Bambridge Accountants are known for their friendly professional service, and they have Enrolled Agents who are all qualified, and they will take the worry away when it comes to filing your taxes. With ten years of experience, you will be in safe hands.