What IRS Foreign Asset Disclosure Program Should I Use?

Navigating the IRS’s Offshore Disclosure Programs

If you have money stashed overseas and it’s keeping you up at night, you might be thinking about turning it in to the IRS and making a full disclosure.

Having cash stashed overseas can bring a nice payment or two every so often, but the chance of getting prosecuted by the feds can be quite scary. So, why not take advantage of some of the IRS’s offshore disclosure programs?

The thing is that the IRS has multiple programs for reporting overseas asset. Ever since the IRS opened the floodgates for more favorable terms for delinquent taxpayers, thousands of people have reported assets through multiple programs, bringing billions of dollars into the system.

First, there’s the Offshore Voluntary Disclosure Programs. The OVDP is considered the bread and butter of the IRS’s offshore disclosure programs. It’ll require 8 years of amended tax returns, and penalties of 20 percent for what you’re determined to pay, and 27.5 percent for your highest offshore account balance.

While the OVDP penalties may seem high, there’s a bright side to it all: it’ll protect you from criminal prosecution. You probably can’t put a price on that.

The other IRS offshore account disclosure programs are the Streamlined programs. They’re split into two, Domestic, for people in the United States, and Foreign, which is for Americans living abroad. The streamlined programs don’t offer protection from criminal prosecution, however.

The Streamlined programs aren’t as flexible as the OVDP, and they require a showing that you made mistakes that were ‘non-willful.’ If you pursue these programs and the IRS can tell that your ‘mistakes’ were in fact deliberate, the IRS won’t show you mercy.

The size of the Streamlined Domestic penalty stands at just 5 percent, but it’s calculated with an account’s or asset’s year-end value, not the highest value as with the OVDP.

There’s also the FBAR program. The FBAR is pursued by filing Form 114, and stands for Report of Foreign Bank and Financial Accounts. It applies to taxpayers that have an interest in or signature authority over an international financial account that exceeded $10,000 in any given tax year.

Accounts that need to be reported via FBAR include those at a foreign branch of a U.S. bank.

But there’s also another way to disclose overseas assets, and that’s by filing Form 8938. This form is filed if the total balance of overseas assets exceeds $50,000.

Form 8938 has to be filed for interests in an overseas partnership, foreign stock or securities, overseas mutual funds, and foreign hedge funds.

If your total financial picture includes overseas assets, then figuring out how you report them probably isn’t going to be easy. That’s why if you think you’re in the IRS’s crosshairs due to unreported international finances, you better consult a tax attorney.