Source: https://www.goldinglawyers.com/streamlined-disclosure-or-reasonable-cause-statement-fbar-lawyers/
Timestamp: 2019-04-20 12:54:41+00:00

Document:
3 Can the IRS Terminate the Streamlined Programs?
5.2 What if I was Willful?
7.1 How to Qualify as a Foreign Resident?
17 Who Decides to Disclose Unreported Money?
20 What Should You Do?
*We are the only State Bar Board Certified Tax Law Firm that specializes exclusively in IRS Offshore Voluntary Disclosure Law.
If your failure to disclose foreign accounts was non-willful (in other words, you were unaware of the requirement to file the form) and/or you can show Reasonable Cause, you generally have two different options available in order to get compliant. The first option is submitting a Reasonable Cause Statement and the second option is to submit to the Streamlined Offshore Disclosure Program.
Each method has its own pros and cons, and oftentimes it will boil down to the specific facts and circumstances of the non-disclosure, coupled by the risk assessment on the part of the account-holder.
The IRS Streamlined Filing Compliance Procedures (aka “Streamlined Program”) are comprised of the Streamlined Domestic Offshore Procedures and/or the Streamlined Foreign Offshore Procedures.
International Tax Compliance is a major enforcement priority for the IRS. With the introduction of FATCA (Foreign Account Tax Compliance Act), more than 110 countries and more than 300,000 Foreign Financial Institutions “FFIs” have agreed to report U.S. Account Holders to the IRS.
Why? because the penalties for failing to comply with even the FBAR Requirements can reach as high as $10,000.00 per account, per year (if you were non-willful) and as high as 100% value of the account if you were willful.
Our International Tax Lawyers represent hundreds of taxpayers annually in Streamlined Domestic Offshore Procedure submissions and Streamlined Foreign Offshore Procedures in over 55 different countries.
The Streamlined Offshore Procedures are a highly cost-effective method of quickly getting you into IRS (Internal Revenue Service) or DOT (Department of Treasury) compliance before it is too late!
Can the IRS Terminate the Streamlined Programs?
Yes. The Streamlined Filing Compliance Procedures can be terminated at any time. While there have been rumblings about the offshore disclosure programs terminating for some time now, it seems to be that the IRS may really be terminating the programs in the near future, as provided by some of the higher-up at the IRS at a recent conference in late 2017.
As a result, we imagine that many individuals will be considering entering the program before it’s too late. Therefore, while we always recommend using an experienced streamlined disclosure attorney to assist you with handling the process, we also like to try to educate individuals – so that if an applicant is going to try to do it themselves, they will at least have the correct information to do so.
The Streamlined Domestic Offshore Procedures are more common than the Streamlined Foreign Offshore Procedures, simply because the IRS put up many roadblocks to meeting the Foreign Resident requirement for SFOP.
The Streamlined Domestic Offshore Procedures are designed for non-foreign residents. In other words, in order to apply to this program, you must be a US resident and not considered a foreign resident. Moreover, the applicant must meet two main requirements.
In order to be non-willful, the individual must show that they…weren’t willful – yes, that’s pretty much the extent of the definition provided by the IRS. In other words, the IRS likes to try to place the burden on you, the individual, to prove that you are non-willful.
In fact, the IRS has gone to great lengths to keep the specific analysis it uses to determine that somebody was willful under lock and key — going so far as fighting it in court. In our experience, we have found that typically, common sense rules dictate.
For example, if you literally had no idea that foreign accounts needed to be reported, and your actions, behavior, and history shows that you did not access the foreign accounts, withdraw any money from them, etc., then chances are you will able to show you were non-willful.
The further you sail away from those shores, the murkier the water becomes, and with it is an increased risk that the IRS may dispute your claim that you are non-willful.
What is your U.S. status?
How long have you been in the United States for?
How many years have you filed U.S. tax returns?
What types of investments do you have overseas?
Do you utilize a financial planner?
Do you have a CPA or EA?
Is your CPA or EA experienced in international tax?
Did the CPA or EA send you questions in writing asking about Foreign Accounts or Income?
Did you respond truthful to the CPA or EA?
Did you complete a schedule B?
Are you tax compliant in the country in which the accounts are maintained?
Did you have unreported income as well?
These are just some of the many questions you should consider prior to determining whether you were non-willful.
What if I was Willful?
*If you were willful, then you should never submit to OVDP. Unfortunately, there has been an influx of inexperienced attorneys who will prey upon you, and convince you to go streamlined instead of OVDP. They will make it seem that if you only have a small amount of income, or were only noncompliant for a few years, that you can still go streamlined.
This is both improper and unethical, and if you come across an attorney trying to sell you on this false bill of goods, you should contact his or her local state bar association. Click Here for a Case Study Example of what happens when the IRS catches you.
In order to qualify for the Streamlined Domestic Offshore Procedures, you must show that you filed your original returns timely. There is some wiggle room regarding the terminology “timely,” and if you filed your returns, but they were filed late — you should consider having a tax attorney contact the streamlined program directly to assess whether you may qualify despite having filed late original returns.
The Streamlined Program requires the applicant to amend and pay outstanding tax liability for the last three (3) years to include unreported foreign income and unreported foreign accounts that were not previously reported on a U.S Tax Return. It also requires the applicant to file six (6) years of FBARs (FinCEN 114) and pay a (relatively) small penalty which equals 5% of the highest year end value for any given year, unless you qualify as a foreign resident for 330-days, in which you can receive a penalty waiver!
File required forms such as 3520, 3520-A, 5471, 8621, 8865, 8938, etc.
You do not have to have filed all prior year tax returns.
How to Qualify as a Foreign Resident?
If you live overseas and qualify as a foreign resident (reside outside of the United States for at least 330 days in any one of the last three (3) tax years or do not meet the Substantial Presence Test in one of the last three (3) tax years) you may obtain a waiver of all FBAR and FATCA penalties.
The Streamlined Foreign “330-day rule,” is a hard and fast rule.
Thus, the Streamlined Foreign “330-day rule” should be distinguished from Internal Revenue Code section 911 which is used by taxpayers trying to claim the Foreign Earned Income Exclusion by showing they qualify for either the physical presence test (330 days) or the bona fide residence test. Thus, even though a person could qualify as a bona fide resident under IRC 911 for the foreign earned income exclusion, it does not mean that they qualify for the streamlined foreign program.
As provided by the IRS: The discussion of the non-residency requirement for eligibility for the Streamlined Foreign Offshore Procedures refers to IRC § 911 and its regulations. Does that mean that anyone who is non-resident under IRC § 911 and its regulations is non-resident for purposes of the Streamlined Foreign Offshore Procedures?
*The reference to IRC § 911 and its regulations is only to the parts of those authorities that define “abode,” which are found in IRC § 911(d)(3) and Treas. Reg. § 1.911-2(b). Non-residency for purposes of the Streamlined Foreign Offshore Procedures is defined in those procedures, and not in IRC § 911 and its regulations.
If you were completely non-willful in your failure to disclosure and were unaware that there was any reporting requirement, then the thought of paying any penalty may sound absurd. Here are three examples in which paying any penalty for your undisclosed foreign accounts may seem unfair.
Example 1: 80-year-old Michael travels worldwide and has 3 accounts in different countries. He only uses the foreign money when he is in the foreign country at issue, he never transfers the money to the US, and there is usually a relatively small amounts of money in each account. The only issue for Michael was that at one point, Michael thought about purchasing a home overseas and left the money in the foreign account for a significant period of time (including 12/31). Foreign taxes were fully paid on the money deposited into the account and foreign taxes were paid on the income the account generated. His only mistake was that he did not report the account and/or the foreign income on his U.S. Tax Return.
Example 2: Michelle, a widow who had never been in trouble with the law, moved to the United States over 30 years ago but has a $1 million USD foreign pension from a private employer through the early 1970s. She has never accessed the account nor has she contributed (or anyone else contributed) since arriving in the United States. The account/earnings are not taxed in the US until distributed, there have been no distributions, and Michelle never reported the account on an FBAR or 8938.
Example 3: David has a foreign account, which he received as an inheritance. He never touched the money, and even though the account earns minimal annual income, there is no tax for passive income in this particular country. He has no other ties to the country and has not used any of the money. David’s son has special needs and he needs to access a large chunk of the money in a short period of time. He has not reported the account on an FBAR or 8938.
As you can see from the aforementioned examples, none of these individuals had any intent whatsoever to perform tax evasion. Moreover, the amount of income earned is relatively minor compared to the outstanding amount in the foreign accounts. In addition, in the case of Michelle, the majority of her money is it a pension account which is not even taxed by the US. Thus, even under the streamlined program she would be paying $50,000 in penalties for an account in which all of the money was earned and reported timely in her foreign country and all foreign taxes were paid on the contributions.
Unlike the Streamlined Program or OVDP where there are strict procedures to be followed, a reasonable cause submission is different. It should be noted that a person can submit a reasonable cause application for any number of different reasons; it is not limited only to offshore money and reporting foreign accounts.
With a reasonable cause submission, the attorney will carefully evaluate and analyze the facts and circumstances of your case in detail. He or she should sit down with you either person or via teleconference if you are non-local and assess the pros and cons of the potential submission in order to determine what the benefits and detriments may be to a reasonable cause disclosure. Thereafter the attorney will amend the returns, prepare the necessary forms, and draft a persuasive Reasonable Cause Letter.
At Golding & Golding, we are Tax Attorneys (with Masters of Tax Law) and Enrolled Agents credentialed by the IRS (Highest Credential awarded by the IRS), so we handle your entire submission (Taxes, Legal, and Audit Defense) in-house, for a flat-fee.
5471 – US Ownership of Foreign Companies.
This may result in a significant savings versus offshore disclosure – especially when you have significant unreported accounts and assets overseas and minimal income.
Reasonable cause does not come without its risks. If the reasonable cause statement is rejected, then you may be subject to fines and penalties that are higher than would have been issued under the Streamlined Program.
Nevertheless, if penalties are issued, then you are entitled to appeal the penalties and thereafter file with the US Tax Court if you are still unsatisfied with the appeals process. Of course, this may take a lot of time and effort – not to mention attorneys fees depending on the seriousness of the fines and the facts of your case – which is counterintuitive.
Before convincing yourself that you should be spared any penalty, it’s important to look at the facts and circumstances of your case in the most objective light as possible.
How many forms did you fail to report?
How much unreported foreign income did you have?
For how long did you fail to report these forms?
Did you work with a CPA, Enrolled Agent, or Tax Accountant and prepare your returns?
Did the CPA, Enrolled Agent, or Tax Accountant ask you about your foreign accounts or Foreign Income?
Have you otherwise filed your U.S. tax returns timely?
Are you originally from the United States and how long have you been in the United States filing tax returns?
How much unreported foreign income do you have?
Did a foreign financial institution inform you of your requirement to get FATCA or IRS Tax Compliant?
Are you prepared to go the distance and appeal the matter or even bring it the Tax Court if it is rejected?
IRS Offshore Voluntary Disclosure is ALL we do. While our lead partner, Mr. Golding has been practicing for 20 years as an attorney, and has extensive experience in complex, high-stakes Eggshell Audits, Reverse Eggshell Audits, Criminal and Civil Litigation, we limit our practice exclusively to IRS Offshore Voluntary Disclosure.
We have successfully handled several hundred Voluntary Disclosure cases.
We are the OVDP Attorneys that other CPAs, Attorneys (and even current and former IRS personnel) contact when they need help.
The exam is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys.
Unlike other attorneys who call themselves specialists but are not “Board Certified,” handle 5-10 different areas of tax law, purchase multiple keyword specific domain names, and even practice outside of tax, we are absolutely dedicated to Offshore Voluntary Disclosure.

References: § 911
 § 911
 § 911
 § 911
 § 1
 § 911