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Updated by Kevin Thorn on Mar 31, 2020
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Kevin Thorn Kevin Thorn
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10 Ways to Avoid Civil Penalties for Failure to Make Offshore Voluntary Disclosures

Individuals who hold offshore accounts can face substantial penalties if they fail to voluntarily disclose their foreign holdings to the IRS. However, these penalties can also be avoided (or at least substantially mitigated) with careful and strategic tax planning. If you hold offshore accounts, the best way to reduce your risk of facing an audit is to work with an experienced offshore voluntary disclosure attorney. We’ve broken down 10 top tips for avoiding related penalties.

1

Determine if Your Offshore Accounts are Subject to Voluntary Disclosure

First, you must determine if your offshore accounts are subject to voluntary disclosure. If they are not, then you have nothing to worry about. If they are, then you must comply with the applicable voluntary disclosure requirements.

2

Disclose Your Offshore Accounts to the IRS

Voluntary disclosure of offshore accounts requires the submission of IRS Form 8938 and IRS Form 14654 for U.S. residents . If you are behind on your filings, you will also need to submit an amended filing using IRS Form 1040X. Depending on your personal circumstances, you may need to file other IRS forms as well.

3

File the Necessary FBARs

In addition to disclosing your offshore accounts to the IRS, you may also need to disclose them to the Financial Crimes Enforcement Network (FinCEN). This is done using FinCEN Form 114, which is also commonly known as an “FBAR.”

4

Learn about the Streamlined Filing Compliance Procedures by the IRS

If you are delinquent on your voluntary disclosures, your best option may be to utilize the IRS’s streamlined filing compliance procedures. Submitting a streamlined filing can allow you to pay reduced penalties, but it can also expose you to an IRS audit or investigation.

5

Determine if Your Non-Disclosure Will Be Deemed “Willful”

One of the eligibility criteria for submitting a streamlined filing is that your failure to file must be “non-willful.” If you cannot adequately demonstrate non-willfulness, then you will be required to pay the full penalties for offshore account disclosure violations.

6

Determine if You Meet the Other Eligibility Criteria for Making a Streamlined Filing

There are various other eligibility criteria as well. In order to submit a streamlined filing and pay a reduced penalty, you must meet all of the eligibility criteria.

7

Properly File All of the Necessary Forms

The IRS has special rules and a special address for the submission of streamlined filings, and you must separately file your FBARs with FinCEN.

8

Accurately Calculate Your Taxes, Interest and Penalties

At the time you submit your streamlined filing to the IRS, you must also submit payment of all taxes, interest and penalties owed. Inaccurately calculating any of these amounts may result in denial of streamlined filing protection.

9

Respond Promptly if You Receive Notice of an IRS Audit

If you receive an audit letter or are otherwise contacted by the IRS regarding your offshore voluntary disclosure obligations, you should respond promptly. Your first step should be to contact a tax attorney in your area.

10

Avoid Unnecessary Voluntary Disclosures

While U.S. taxpayers with qualifying offshore accounts have certain voluntary disclosure obligations, voluntarily disclosing too much information can result in unnecessary exposure to penalties and prosecution. Once again, working with an offshore voluntary disclosure attorney is the best way to ensure you are protected