Why Hastily Prepared Expat Offshore Disclosures Are Ill-Fated

Why Hastily Prepared Offshore Disclosures are Ill-Fated & Risky

Hastily Prepared Offshore Disclosures are Ill-Fated & Risky

Oftentimes, when a U.S. Taxpayer first learns that they are out of compliance for failing to timely report foreign accounts, assets, and investments on the necessary IRS international information reporting forms, it causes them a high level of distress. In addition, there is a large amount of misinformation on the World Wide Web that may lead a taxpayer to believe that their failure to report foreign accounts and assets may automatically result in criminal charges and willful penalties. While some taxpayers may ultimately become subject to willful civil penalties or even criminal FBAR violations (although criminal violations are rare), the majority of taxpayers will be able to prove they are non-willful and submit to one of the non-willful offshore disclosure programs such as the Streamlined Procedures or Delinquency Procedures. Unfortunately, many inexperienced tax professionals market themselves as experts and specialists but are not Board-Certified and are not experts in offshore disclosure — and make false representations to unsuspecting expats about getting an accurately prepared offshore disclosure completed in 1-2 weeks.

If an offshore disclosure attorney claims they can get your disclosure done (properly) and accurately within a week or two, chances are the disclosure is inaccurate and missing key portions of information.

How can taxpayers prevent their tax professionals from submitting a sloppy and inaccurate offshore disclosure?

You Just Learned You are Non-Compliant and Want it Done ASAP

We get it. You are out of compliance and want to resolve the issue as quickly as possible.

Here is a common situation we see often for taxpayers who are out of compliance for failing to report foreign accounts:

• • • The Taxpayer receives a letter from their Foreign Financial Institution such as a FATCA Letter or KYC letter, which requests the Taxpayer to submit information such as a W-9 or W8-BEN. The Taxpayer then realizes that they should have been reporting their foreign accounts, assets, and investments to the IRS and they want to get into compliance as quickly as possible.

Which Offshore Disclosure Procedure is Right for You?

It is important to note, that there are many different types of offshore disclosure programs — and some attorneys are all too quick to submit to the program the client tells them to, without doing their proper due diligence to carefully evaluate the facts and circumstances to determine if the Taxpayer even qualifies for the program the Taxpayer wants to submit to.

For example, a taxpayer may come to an attorney and tell them they want to submit to the Streamlined Procedures. However, after completing the tax lawyer’s questionnaire and the tax team doing their due diligence, it becomes evident that the Taxpayer may not qualify for the Streamlined Procedures because the facts as presented do not show non-willfulness, despite what the Taxpayer believes.

If the lawyer just submitted the documents ASAP because the client wanted them to, it could put the client in a very precarious situation because the IRS comes down very hard on taxpayers they believe misrepresented the facts to claim they are non-willful when in fact they were willful.

How Complex is the Submission?

Sometimes the taxpayer will speak with a specialist attorney and let them know they want their submission done in a few weeks. Most reputable firms would inform the Taxpayer that it is nearly impossible because preparing an accurate offshore disclosure submission takes a significant amount of time to review and assess the facts, prepare the documents, review and finalize the documents, and then have the taxpayer review the documents as well.

An Offshore Disclosure that is prepared in a week or two will be severely lacking in substance and quality.

How long does an Offshore Disclosure Take?

In general, an offshore disclosure should take about 10 to 14 weeks depending on the extent of the missed reporting, how many foreign accounts were not disclosed, if there were any more complex issues such as PFIC or CFC (which would extend the amount of time necessary to complete the project), and the specific facts and circumstances surrounding the non-compliance to ensure they are properly presented to the IRS.

Remember the IRS Has 6-Years to Audit/Examine You

Sometimes a firm will slap together an offshore disclosure that took them a week or so to prepare and then the taxpayer believes that everything is resolved. But, it is important to note that the IRS generally has six years to review, evaluate, and audit the taxpayer for the streamlined submission so racing to get a sloppy or inaccurate submission into the IRS is typically not the best strategy almost all of the time.

What About Responding to a FATCA Letter You Received?

Generally, if the taxpayer requests an extension to respond to the FATCA later, the foreign financial institution will grant it on one or more occasions. Even then, once the Foreign Financial Institution sends the information to the IRS it doesn’t mean the IRS acts on it immediately.

Late Filing Penalties May Be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.