Regular readers of this blog may remember an earlier post discussing foreign bank and financial account reporting requirements (FBAR). That article discussed two voluntary disclosure programs, the Offshore Voluntary Disclosure Program (OVDP) and the Streamlined Compliance Procedures program, through which taxpayers may disclose to the United States government any foreign accounts, assets and income they had previously failed to identify.
It’s worth going into some additional detail about some differences between streamlined filings and OVDP. The OVDP carries a relatively high civil penalty compared to streamlined filings, but it does offer one significant advantage over streamlined filings. An OVDP submission is reviewed and the taxpayer informed whether or not the filing has been accepted.
Civil Statutes of Limitation for Streamlined Filings
On the other hand, taxpayers submitting a streamlined filing don’t get a relatively quick, cut-and-dried acceptance or rejection of their submission. Instead, they must wait out the relevant statute of limitations to see whether the IRS will audit their returns and arrive at an unfavorable result. The IRS could determine that the taxpayer acted willfully, or even criminally, in committing one of the following acts:
- Filing a false return;
- Failing to file in a timely fashion;
- Failing to report a foreign bank or financial account;
- Falsely certifying that a failure to file was non-willful; or
- Filing a false FBAR.
The applicable statute of limitations (SOL) in a matter defines the length of time a government entity, such as the IRS or Department of Justice (DOJ), has to act against a taxpayer who has done one or more of the above. The government may, during that time period, assess further taxes or penalties or charge the taxpayer with a crime, if applicable.
With regard to income tax assessments, the IRS must generally assess any additional tax within three years from the due date of the return, or from the filing date if the return was filed after the due date. However, if the unreported gross income is more than 25% of the total gross income, the statute of limitations is extended to six years.
The civil statute of limitations does not apply to false or fraudulent returns, or cases in which the taxpayer willfully attempted to evade payment of the tax. In such cases, as with cases in which no return was filed for a given year, taxes may be assessed at any time.
Criminal Statutes of Limitations
As noted above, criminal penalties may also apply to streamlined filings. These include income tax crimes under Title 26 of the U.S. Code. Tax evasion has a statute of limitations of six years starting from the date of the commission of an offense, but this can be extended to start from the date of the last act of tax evasion. Similarly, filing a false return or delivering a false document has a six year statute of limitations.
Under the general federal criminal code, Title 18, conspiracy under section 371 (conspiracy) has a statute of limitations of six years running from the last act committed in furtherance of the conspiracy. If the taxpayer is determined to be “fleeing from justice,“ however, no statute of limitations will apply. Similarly, the statute of limitations is tolled if there is a pending U.S. government request to a foreign government for evidence located in a foreign country.
Taxpayers may also face criminal prosecution under the Bank Secrecy Act, Title 31 of the U.S. Code. The statute of limitations is five years from the date the offense is committed, i.e., the due date of the FBAR or June 30. It is possible that this period could be extended by the provisions of Title 18 referred to above, however.
Some taxpayers elect to not address past reporting requirements, and simply to file going forward. This strategy obviously has risks. It’s best to have the advice of an experienced tax attorney before deciding how to proceed with a streamlined filing or an OVDP. The attorneys of Ortiz & Gosalia, PLLC have post-JD degrees in tax law and can help you to understand foreign bank or financial account reporting requirements. With offices in Redmond, Bellevue and Kirkland, we offer services throughout the Seattle area and Washington State. If you would like to learn more about streamlined filings and statutes of limitations, we invite you to contact us.