How To Report Unfiled Tax Returns For U.S. Foreign Company Owners and U.S Expats

How To Report Unfiled Tax Returns For U.S. Foreign Company Owners and U.S Expats

It is worth your while to attach a reasonable cause statement to each delinquent information return filed for which you asserted reasonable cause. The IRS might assess penalties in disregard of the reasonable cause statement, in which case taxpayers should respond to the correspondence and submit and resubmit the required reasonable cause information.

The IRS will undoubtedly assess penalties according to the procedure. Attach all delinquent information returns excluding Forms 3520 and 3520-A as attachments to an amended return filed in terms of the amended return instructions. Separate instructions exist for filing outstanding Forms 3520 and 3520-A.

Not all information returns filed along with amended returns will be subject to audit; however, it might be selected through the current process for tax and information returns.

IRS Criminal Investigation Voluntary Disclosure Practice

You have to comply with all US tax laws; you have no choice. Some taxpayers fail to comply. The IRS has various civil and criminal sanctions to enforce compliance and punish the non-conformists, including imprisonment, fines, and penalties. If your non-compliance was willful, a voluntary disclosure could help you resolve your problem and limit your criminal prosecution exposure.

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Voluntary Disclosure Practice

  • Define Voluntary Practice

When you provide a truthful, timely, and complete disclosure to CI following designated procedures, and you cooperate fully with the IRS to determine your correct tax liability, and you make bona fide arrangements to pay your tax in full, including the interest and penalties.

  • Define Timely

If the disclosure reaches the IRS before they began a civil examination or criminal investigation, were alerted by a third party about your non-compliance, or acquired information about your specific non-compliance from any criminal enforcement action ( search warrant, grand jury, or subpoena).

  • Your Benefit

It is an established IRS criminal investigation (CI) practice. During CI, voluntary, timely, and accurate disclosures are considered in determining if criminal prosecution is required. Voluntary disclosures do not guarantee immunity, but it might result in the avoidance of prosecution.

You could apply if you face criminal exposure due to the willful violation of the law, e.g., if you committed tax or tax-related crimes. You apply to seek protection from criminal prosecution. If your non-compliance wasn’t willful, you could correct past mistakes by filing amended or past due returns.

None of this applies to illegal sources of income. Income that is legal under state law but not under federal law is defined as an unlawful source of income regarding the Voluntary Disclosure Practice.

To apply for the Voluntary Disclosure Practice, you must fill out Part I of Form 14457, Voluntary Disclosure Practice and Application PDF, to request pre-clearance. It determines your eligibility but does not guarantee acceptance.

If your pre-clearance is confirmed, you have to submit Part II of the Voluntary Disclosure Application within 45-days or request additional time, which will be approved on a case-by-case basis. Only one 45-day extension will be permitted. CI will now review your submission to determine if you can be allowed to participate. If you do, CI will provide you with a Preliminary Acceptance Letter and will forward your Form 14457 to a civil section of the IRS. An examiner will contact you once the case is assigned.

You are required to cooperate by providing documents and information. The procedures are available in the instructions attached to Form 14457.

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Streamlined Filing Compliance Procedures

It is available for taxpayers to certify that they failed to report foreign financial assets and pay all their taxes on the same not through any willful conduct. The process provides a streamlined procedure to file amended or delinquent returns and the terms for resolving their tax and penalty obligations.

Significant recent changes to the procedures include:

  • Extended eligibility to US taxpayers who live in the US
  • Elimination of the $1,500 threshold
  • Elimination of the risk assessment process

These procedures are available only to individual taxpayers. It includes the estates of individual taxpayers and individual taxpayers that live inside or outside of the US.

  • Taxpayers must certify that their conduct was non-willful
  • And indicate If the non-willful conduct was the result of negligence, inadvertence or a mistake, or conduct that resulted from a bona fide misunderstanding of the requirements of the law.

The taxpayer cannot use the streamlined procedures if the IRS has already initiated a civil examination of his returns for any taxable year, regardless of whether the investigation relates to undisclosed financial assets. The same goes for taxpayers under IRS CI.

Eligible taxpayers who already filed delinquent or amended returns must pay previous penalty assessments. Taxpayers who made quiet disclosures outside of the Offshore Voluntary Disclosure Program (OVDP) or its predecessor may still use the streamlined procedures if they followed the instructions below. However, previous penalty assessments will not be abated.

To participate, taxpayers will need a valid Taxpayer Identification Number. For US citizens, resident aliens, and specific individuals, their TIN is a valid Social Security Number (SSN). If you do not qualify for an SSN or ITIN, you cannot be eligible for the streamlined procedures. If you are ineligible for an SSN but do not have an ITIN, you can submit under the streamlined procedures if a complete ITIN application accompanies it.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. This article cannot serve as a substitute for such professional services or advice. Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation. This article is subject to change at any time and for any reason.

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Fulton Abraham Sanchez, CPA

Fulton Abraham Sánchez, CPA I am Certified Public Accountant, specialized in Tax Planning & Offshore Strategies for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution. You can email me and follow us on Facebook : FAS CPA & Consultants.

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