The IRS requires you to file certain reporting returns if you have an interest in foreign financial accounts, receive amounts from foreign sources, have a foreign trust, corporation or partnership or just generally own or do business in another country. Not everyone has to file. It’s only applicable if the amounts are above certain limits that vary based on whether you are single or married or if you live in the US or outside the US. It’s best to check this out with a tax professional who is experienced in foreign reporting to make sure you are in compliance.
There are some pretty tough penalties and even jail time if you miss these reports.
The IRS has a new amnesty program. You have to qualify, though.
Under this new program, the taxpayer must certify that the failure to report all income, pay all tax, and submit all required informational returns was due to non-willful conduct and must meet a non-residency requirement.
Non-willful conduct means that you made a mistake due to negligence, inadvertence, or mistake or conduct and that ir is the result of a good faith misunderstanding of the requirements of the law. In other words, you goofed and you didn’t know better.
The non-residency requirement is met, if, in any one of more of the most recent three years , the individual did not have a US home and the individual was physically outside the United States for at least 330 full days. There is a separate test for foreign earned income test, the bona fide test, but it appears for this amnesty program only one test will work. That is the physical presence test.
In order to get amnesty for the civil and criminal penalties, you must prepare:
- 3 years worth of delinquent or amended tax returns, together with all required information (Forms 3520, 5471 and 8938), and
- The most recent 6 years for which the FBAR due date has passed (FinCen 114/TD 90-22.1), and
- To pay the full amount of tax and interest due in connection with these delinquent or amended returns.
If you come forward with all of the above, and you qualify for amnesty, you can avoid all of the penalties (failure to file, accuracy related, etc).
But, this only works if you come forward voluntarily. If you wait for the IRS to find out in an audit, you will face all of the penalties. Act fast if you’re in this situation.