When you fail to report your financial activity from outside the United States, it opens up the door for the Internal Revenue Service (IRS) to impose penalties, especially if you cannot prove that the action was non willful. The offshore disclosure process in Washington DC must be done carefully but you could secure your financial future with assistance from a diligent offshore disclosure attorney.
The offshore disclosure process can alter slightly depending on which program someone uses. Some of the more common programs are the streamlined foreign offshore procedure for people living outside of the U.S., as well as one for people living inside the U.S.
A taxpayer just needs to prepare the amended returns and FBARs, with a calculation of the tax, related interest, and the offshore penalty. They also need to prepare a narrative explaining why were not willfully avoiding the disclosure. Once all of this is compiled, they must file it with the IRS and wait – typically four to six months. After the disclosure is complete, the IRS has up to three years to conduct an audit if they choose, but this is extremely rare. In the event that it does occur, the lawyer will have extensive documentation to prove that the taxpayer was in compliance.
Sometimes an audit takes place because the IRS claims “there was no narrative.” Narratives are crucial for explaining why someone was not willful. The offshore disclosure process for a DC resident is not a back-and-forth negotiation; it is a one-time disclosure, and the objective is to be as clean and accurate as possible in order to get significantly reduced penalties. If the taxpayer has a delinquent FBAR, they need to prepare a brief narrative to go with it, and then e-file it to the IRS.
The voluntary disclosure process is a more serious situation since it involves exposure to criminal liability. This is for taxpayers who willfully fail to report foreign income and file forms about their accounts. For voluntary disclosures, the taxpayer sends a pre-clearance to criminal investigation and the Interrogatory Service in Philadelphia. If the IRS writes back and says that the person is not being criminally investigated, the taxpayer would then be eligible to make a full voluntary disclosure.
In addition to six years of tax returns that need to be filed with the Large Business and International field office in Austin, Texas, that tax return will be examined closely. Once the returns are filed, it would take months to be assigned. The whole voluntary disclosure process in Washington DC is much more in-depth and takes longer than the streamlined program but the benefit is that it would provide protection from criminal prosecution.
If the program is streamlined, either domestic or foreign, the disclosure will be processed through the Austin, Texas campus. For the more serious voluntary disclosure, it goes to Philadelphia for the pre-clearance, then to Austin for sending the returns, and finally the tax returns are examined in a field office usually in the geographic area where the taxpayer resides. Delinquent FBARs are filed online through the Department of Treasury, specifically the Financial Criminal Enforcement Network (FINCEN).
An examination will be required for voluntary disclosure. There is no heightened risk or chance of the other disclosures being examined, but any tax return filed by any person at any time is, per the law, subject to an examination. It depends on the resources of the IRS and any type of red flag on the tax return that could increase the risk.
Ensure that you understand the entire offshore disclosure process in Washington DC by calling a legal professional and explaining your situation.
Pontius Tax Law, PLLC is a tax law firm that strives to resolve sensitive tax problems through trust, dedication and value. The law firm was founded by John Pontius with offices in Washington, DC, Rockville, MD, Bethesda, MD, Vienna, VA, and Alexandria, VA. Mr. Pontius represents individual and business clients with sensitive and serious tax matters before the Internal Revenue Service and state taxing authorities. His client base is local, national, and international.
Over the course of his career, Mr. Pontius has represented businesses and individuals with complex tax issues in the following areas: FBAR examinations, offshore and domestic disclosures, FATCA, FIRPTA, tax planning, unfiled tax returns, release of tax liens and levies, trust fund recovery penalty, IRS and state audit examinations, as well as appeals, penalty abatement, U.S. Tax Court litigation, along with defense of tax fraud and evasion. If you require assistance from a tax lawyer, contact Mr. Pontius to discuss your situation.