Wealthy clients with overseas accounts had until late September to voluntarily reveal unreported foreign financial assets without the threat of tax charges. What can they do if they missed the deadline?

Under the IRS Offshore Voluntary Disclosure Program (OVDP), the general filing requirement applies to anyone who had an interest in, or signature or other authority, over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2017. The OVDP amnesty period ended in late September, and now penalties range from four figures for a negligent violation to as high as half of the highest account balance per tax year for a willful failure to file, according to Edward Jenkins, a CPA and senior tax consultant with Boyer & Ritter in State College, Pa.

According to the IRS, “there has been a significant decline in the number of taxpayers participating, as well as an increase in awareness of offshore tax and reporting obligations.”

“As the September deadline approached, I didn’t observe an increased effort by U.S. taxpayers to enter the program," said Melissa Price,  a partner in law firm McDermott Will & Emery’s private client practice in New York who advises clients on domestic and international tax and estate planning matters. "I think most taxpayers who were aware of and motivated to enter into the program had already done so.”

“My sense is that there are still wealthy individuals who aren’t aware of their reporting obligations in the U.S. and were not and are not aware of the OVDP,” she added. “They may not realize they’re required to report foreign assets, particularly if those assets don’t produce significant income.”

Individuals with reporting delinquencies, Price said, can still file in different ways:

• Streamlined filing compliance procedures are available to individual taxpayers who can certify that their failure to report foreign assets and pay due tax was due to non-willful conduct and if certain other requirements are met (e.g., the IRS has not initiated a civil examination of their returns). But advisors and clients need to beware: “If a taxpayer uses this procedure and the IRS determines that failure to file was willful, he or she could face criminal sanctions,” Price said. Non-willful conduct is conduct due to negligence, inadvertence or mistake, or conduct that’s the result of a good faith misunderstanding of the requirements, she added. IRS modified streamlined filing compliance procedures are designed only for individual taxpayers, including estates of individuals. Taxpayers who previously filed delinquent or amended returns must pay previous penalties.

• Delinquent foreign bank account report procedures and delinquent international information return procedures are generally available to taxpayers who failed to file information returns to report ownership of foreign assets but who are up to date on their income tax obligations. Taxpayers must have reasonable cause for not filing information returns on time and must not have been previously contacted by the IRS about the delinquent returns, Price said.

“There is a third option, which may be attractive to wealthy individuals who are concerned that their non-compliance may be viewed as willful,” Price said. “It’s the IRS practice to consider ... the voluntary disclosure of delinquency by a taxpayer to determine whether to recommend criminal prosecution.”

The IRS has also said it may end streamlined filing compliance procedures “at some point.”

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