Source: https://www.rosefeltlaw.com/practice-area/offshore-disclosure-forms-ovdp-forms/
Timestamp: 2019-04-26 10:32:51+00:00

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Disclosure of offshore accounts and assets is a lengthy and complex process. Our office has significant experience in advising clients on the best course for their undisclosed offshore accounts or unreported income and can help make sense of seemingly incomprehensible scenarios. Contact us at (301) 656-4424 or reach out by completing our ten-second contact us form to find out your real options.
If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions.
A person who is required to file an FBAR and fails to do so properly may be subject to a civil penalty not to exceed $10,000 per violation. If there is reasonable cause for the failure and the balance in the account is properly reported, no penalty will be imposed. A person who willfully fails to report an account or account identifying information may be subject to a civil monetary penalty equal to the greater of $100,000 or 50 percent of the balance in the account at the time of the violation. See 31 U.S.C. §§ 5321(a)(5). Willful violations may also be subject to criminal penalties under 31 U.S.C. §§ 532 (a), 31 U.S.C. § 5322(b), or 18 U.S.C. § 1001.
Form 5471 is used by certain U.S. citizens and residents who are officers, directors, or shareholders in certain foreign corporations. The form and schedules are used to satisfy the reporting requirements of IRC §§ 6038 and 6046 and related regulations. A U.S. shareholder may have to pay a penalty if they are required to disclose a reportable transaction under IRC § 6011 and fail to properly complete and file Form 8886, Reportable Transaction Disclosure Statement. Substantial penalties may also apply ranging from $10,000 for each failure to file form 5471. If the failure continues for more than 90 days after the date the IRS mails notice of the failure, an additional $10,000 penalty will apply for each 30-day period the failure continues to a maximum of $50,000. Criminal penalties under IRC §§ 7203, 7206, and 7207 may apply for failure to file the information required by IRC §§ 6038 and 6046.
Corporations file this form to provide information required under sections 6038A and 6038C when reportable transactions occurs during the tax year of a reporting corporation with a foreign or domestic related party. A reporting corporation is either a 25% foreign-owned U.S. corporation or a foreign corporation engaged in a trade or business within the United States. A penalty of $10,000 will be assessed on any reporting corporation that fails to file Form 5472 when due and in the manner prescribed. The penalty also applies for failure to maintain records as required by Regulation § 1.6038A-3. Filing a substantially incomplete Form 5472 constitutes a failure to file the form at all. Each member of a group of corporations filing a consolidated information return is a separate reporting corporation subject to a separate $10,000 penalty and each member is jointly and severally liable. If the failure continues for more than 90 days after notification by the IRS, an additional penalty of $10,000 will apply. This penalty applies with respect to each related party for which a failure occurs for each 30-day period (or part of a 30-day period) during which the failure continues after the 90-day period ends. Criminal penalties under sections 7203, 7206, and 7207 may also apply for failure to submit information or for filing form 5472.
Additional penalties will be imposed if the noncompliance continues after the IRS mails a notice of failure to comply with the required reporting. For more information, see IRC § 6677. No penalties will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect.
The fact that a foreign country would impose penalties for disclosing the required information is not reasonable cause. Similarly, reluctance on the part of a foreign fiduciary or provisions in the trust instrument that prevent the disclosure of required information is not reasonable cause. See section 6677(d) for additional information. In the case of a failure to report foreign gifts described in IRC § 6039F, a penalty equal to 5% of the amount of such foreign gifts applies for each month for which the failure to report continues (not to exceed a total of 25%). No penalty will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect.
Penalties may be imposed under IRC § 6662(j) for undisclosed foreign financial asset understatements. No penalty will be imposed with respect to any portion of an underpayment if the taxpayer can demonstrate that the failure to comply was due to reasonable cause with respect to such portion of the underpayment and the taxpayer acted in good faith with respect to such portion of the underpayment. See section 6662(j) and section 6664(c) for additional information.
includes incorrect information. See IRC § 6677(b)Additional penalties will be imposed if the noncompliance continues after the IRS mails a notice of failure to comply with the required reporting. For more information, see IRC § 6677. Criminal penalties may be imposed under IRC §§ 7203, 7206, and 7207 for failure to file on time and for filing a false or fraudulent return. Penalties may also be imposed under section 6662(j) for undisclosed foreign financial asset understatements. No penalties will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect. The fact that a foreign country would impose penalties for disclosing the required information is not reasonable cause. Similarly, reluctance on the part of a foreign fiduciary or provisions in the trust instrument that prevent the disclosure of required information is not reasonable cause.
Filing Form 8938 does not relieve you of the requirement to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), if you are otherwise required to file the FBAR.
No penalty will be imposed if you fail to file Form 8938 or to disclose one or more specified foreign financial assets on Form 8938 and the failure is due to reasonable cause and not to willful neglect. You must affirmatively show the facts that support a reasonable cause claim. The determination of whether a failure to disclose a specified foreign financial asset on Form 8938 was due to reasonable cause and not due to willful neglect will be determined on a case-by-case basis, taking into account all pertinent facts and circumstance.
Form 8865 is used to report the information required under IRC § 6038 (reporting with respect to controlled foreign partnerships), IRC § 6038B (reporting of transfers to foreign partnerships), or §6046A (reporting of acquisitions, dispositions, and changes in foreign partnership interests). The penalty for failure to file form 8865 is $10,000 for each tax year each foreign partnership failure to furnish the required information within the time period prescribed. An additional $10,000 penalty is charged for each 30-day period during which the failure continues with a maximum penalty ranging from $50,000 to $100,000 depending on the category of filer. Reductions to foreign tax credits can also apply.
A separate Form 8621 must be filed for each PFIC in which stock is held directly or indirectly. Form 8621 is attached to the shareholder’s tax return and filed by the due date. Where there are no distributions to the shareholders, there are no explicit penalties for a failure to file the form. Generally, it is to the advantage of a U.S. taxpayer to file this form and to make an election to pay taxes on the current income of the PFIC. If an election is not made to pay taxes on the current income of the PFIC, then any future distributions may be subject to the punitive tax on excess distributions. In addition, the QEF election may permit the taxpayer to retain the benefits of the lower tax rate on long term capital gains realized by the PFIC.
To date, a significant number of cases submitted under the 2009 OVDP and 2011 OVDI involve PFIC investments. A lack of historical information on the cost basis and holding period of many PFIC investments makes it difficult for taxpayers to prepare statutory PFIC computations and for the service to verify them. As a result, resolution of voluntary disclosure cases could be unduly delayed. Therefore, for purposes of this program, the IRS is offering taxpayers an alternative to the statutory PFIC computation that will resolve PFIC issues on a basis that is consistent with the Mark to Market (MTM) methodology authorized in Internal Revenue Code § 1296 but will not require complete reconstruction of historical data. The details of this method are set forth in the 2012 OVDP FAQ Number 10.
Form 8891 can also be used to make an election pursuant to Article XVIII (7) of the U.S.-Canada income tax treaty to defer U.S. income tax on income earned by an RRSP or an RRIF that has been accrued, but not distributed. Taxpayers who have not previously made the election can make it on this form by checking the box on line 6(c). Form 8891 must be completed and attached to Form 1040 by any U.S. citizen or resident who is a beneficiary of an RRSP or RRIF. Form 8891 should not be filed by itself. A U.S. citizen or resident who is an annuitant of an RRSP or RRIF must file the form for any year in which he or she receives a distribution from the RRSP or RRIF. A separate Form 8891 must be filed for each RRSP or RRIF for which there is a filing requirement. If you and your spouse are both required to file Form 8891, each of you must complete and attach a separate Form 8891 to Form 1040, even if you file a joint return.
If you are a U.S. Taxpayer and have a Canadian registered retirement savings plan (RRSP), registered retirement income fund (RRIF), or other similar Canadian plan and did not make a timely election pursuant to Article XVIII (7) of the U.S. – Canada income tax treaty to defer U.S. income tax on income earned by the RRSP or RRIF that has not been distributed and have not filed form 8891, you may have several option under the 2012 OVDP FAQ 54, or the new IRS Streamlined Procedure.
To learn more about the Voluntary Disclosure Program and any other options available to you, contact the dual-licensed Attorney-CPA’s at the law firm of Daniel Rosefelt & Associates, LLC, at (301) 656-4424 or reach out by completing our ten-second contact form. We serve clients from around the world from our offices in Bethesda, Maryland (Greater Washington D.C. Metro area), or from our satellite offices by appointment in Fairfax, Virginia and Saint Petersburg Florida.

References: § 5322
 § 1001
 § 6011
 § 1
 § 6677
 § 6039
 § 6662
 § 6677
 § 6677
 § 6038
 § 6038
 §6046
 § 1296