Resolving Offshore Account Disclosure Violations in 2024: Key Insights for Taxpayers in the U.S. and Abroad
January 24, 2024
Most U.S. taxpayers who own offshore accounts have a legal obligation to disclose these accounts to the federal government on an annual basis. In most cases, taxpayers must separately report their offshore accounts to the Internal Revenue Service (IRS) and the Financial Crimes Enforcement Network (FinCEN), which is also part of the U.S. Treasury. Failing to report offshore accounts to the IRS or FinCEN (or both) can expose taxpayers to substantial penalties and leave them in need of an experienced Texas offshore tax lawyer.
For taxpayers who haven’t met their offshore account disclosure obligations, informed decision-making is critical. While there are options for resolving these violations without triggering an IRS audit (or federal criminal investigation), taxpayers must work proactively with their counsel to choose the best path forward in light of their unique circumstances.
Options for Resolving Offshore Account Disclosure Violations in 2024
Taxpayers who have failed to disclose their offshore accounts to the IRS and/or FinCEN in previous years have two primary options in 2024. Each of these options is available in different circumstances:
1. Submitting a Streamlined Filing to the IRS
The first option is to submit a streamlined filing to the IRS. The IRS’ Streamlined Filing Compliance Procedures are intended as a means for taxpayers to resolve inadvertent offshore account disclosure violations. This includes violations involving both delinquent Form 8938 filings owed to the IRS and delinquent Report of Foreign Bank and Financial Accounts (FBAR) filings owed to FinCEN.
While there are a handful of eligibility criteria for submitting a streamlined filing, the two most important criteria are:
- No Pending Audit or Investigation – Submitting a streamlined filing is only an option for U.S. taxpayers who are not currently the subject of a pending IRS audit or criminal investigation conducted by IRS Criminal Investigation (IRS CI). This is true regardless of whether the audit or investigation relates to the taxpayer’s offshore account disclosure violation(s).
- Certification of Non-Willfulness – When submitting streamlined filings, taxpayers must be able to certify that their violation “was due to non-willful conduct.” As the IRS explains, “[n]on-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.”
Submitting a streamlined filing is not a way to avoid liability for noncompliance but rather a means to resolve offshore account-related tax controversies without an IRS audit or IRS CI investigation. Taxpayers who have concerns about their ability to pay any taxes, interest and penalties owed will want to consult with a Texas offshore tax lawyer about seeking a settlement with the IRS or the potential of submitting an offer in compromise (OIC).
2. Submitting a Voluntary Disclosure to IRS CI
Since submitting a streamlined filing is only an option for taxpayers who have committed non-willful offshore account disclosure violations, those who have willfully withheld information about their offshore accounts must consider other options. In this scenario, the primary option is typically to submit a voluntary disclosure to IRS CI.
While submitting a voluntary disclosure can be the best way to resolve willful offshore account disclosure violations in appropriate cases, acknowledging that you have willfully violated federal law can also be very risky. IRS CI underscores this fact, stating, “A voluntary disclosure will not automatically guarantee immunity from prosecution; however, a voluntary disclosure may result in prosecution not being recommended.” As a result, an informed and strategic approach is critical.
Similar to submitting a streamlined filing, submitting a voluntary disclosure is only an option if you are not currently facing scrutiny from the IRS or IRS CI. Once you become the target of an audit or investigation, any disclosures you make are no longer considered voluntary. Under IRS CI’s Voluntary Disclosure Practice, taxpayers are also required to:
- Cooperate with IRS CI in determining their tax liability; and,
- Make good-faith arrangements with IRS CI to pay all taxes, interest and penalties owed.
Due to the risks involved, taxpayers who are considering voluntary disclosures in relation to their offshore holdings need to engage experienced counsel. At Brown Tax, P.C., we have extensive experience helping high-income and high-net-worth taxpayers resolve federal tax controversies through voluntary disclosures, and we can communicate effectively with IRS CI on your behalf.
What About a “Quiet Disclosure?”
If you have been researching your options for resolving offshore account disclosure violations in 2024, you may have come across the concept of a “quiet disclosure.” Essentially, this involves using the current year’s tax filings to address past years’ tax filing deficiencies.
The IRS disfavors quiet disclosures, and submitting a quiet disclosure in an effort to resolve a past offshore account disclosure violation can be far riskier than submitting a streamlined filing or voluntary disclosure. As a result, submitting a quiet disclosure generally isn’t going to be the best path forward.
What if I Am Already Facing an IRS Audit or IRS CI Investigation?
As we mentioned above, streamlined filings and voluntary disclosures are only options for taxpayers who aren’t currently facing scrutiny from the IRS or IRS CI. So, what are your options if you are already facing an IRS audit or IRS CI investigation?
Successfully defending against an IRS audit or IRS CI investigation also requires an informed and strategic approach. Even when high-income and high-net-worth taxpayers are at risk for substantial penalties, it will often be possible to achieve a favorable result. At Brown Tax, P.C., we have significant experience representing clients in these scenarios as well, and we can use our experience to help protect you to the fullest extent possible.
Contact Us to Request an Appointment with a Texas Offshore Tax Lawyer
If you have failed to disclose substantial offshore holdings to the IRS or FinCEN, we can help you make smart decisions about your next steps. To speak with an experienced Texas offshore tax lawyer at Brown Tax, P.C. in confidence, please call 888-870-0025 or request an appointment online today.