Page 3 - International Enforcement: What’s Old, What’s New and What We Can Expect

by various IRS submission procedures. We address each if warranted, to the DOJ Tax Division, for investigation
in turn. and prosecution.
In 2014, the IRS announced the Streamlined Filing On August 27, 2019, a federal grand jury returned a
Compliance Procedures (“SFCP”) for taxpayers whose fail- superseding indictment charging Brian Booker, a former
ure to report foreign income or disclosure foreign accounts resident of Fort Lauderdale, Florida, with failing to file
or assets was non-willful. The definition of non-willful is FBARs, filing false tax returns, and filing a submission
a moving target and the subject of extensive litigation, under the SFCP falsely claiming that his failure to report
but in the view of the IRS, a non-willful taxpayer is one all income, pay all tax, and submit all required information
who did not knowingly or recklessly violate a known legal returns, such as FBARs, was due to non-willful conduct.
duty, or turn a blind eye to facts that would have put the Whether Booker made a false statement in his submis-
taxpayer on notice of their tax and reporting obligations. If sion and, if not, whether a criminal case can be brought
a taxpayer engaged in non-willful conduct and the IRS has based on a disagreement over whether conduct is in fact
not initiated a civil examination of the taxpayer’s returns willful, remains to be seen. Either way, taxpayers and their
or a criminal investigation of the taxpayer for any taxable representatives must be aware of the scrutiny applied to
year, he or she (or the estate of a decedent) can come into streamlined submissions.
compliance through the SFCP. Taxpayers who reported on their foreign financial
In general, taxpayers using the SFCP must: (1) complete accounts on their U.S. tax returns, and paid all tax due
and sign the SFCP forms, including a detailed narrative on income earned therefrom, but failed to file FBARs
explaining the nature of the noncompliance and identify- may avoid civil penalties through the Delinquent FBAR
ing all individuals and entities involved, under penalties Submission Procedures as long as the taxpayer is not under
of perjury; (2) for each of the most recent three years for civil examination or the subject of a criminal investigation.
which the U.S. tax return due date (or properly applied Eligible taxpayers are instructed to file the delinquent
for extended due date) has passed (the “covered tax return FBARs according to the FBAR instructions, noting that
period”), file amended or delinquent tax returns with all they are filing pursuant to these procedures.
required international information returns; (3) for each Similarly, taxpayers who do not need to use the SFCP
of the most recent six years for which the FBAR due date to file delinquent or amended returns to report and pay
has passed (the “covered FBAR period”), file any delin- additional tax, but have not filed required international
quent FBARs (FinCEN Form 114, previously Form T.D. information returns and have reasonable cause for failing
F 90-22.1); and (4) pay all tax and interest due and, for to do so, are advised to file the delinquent information
U.S. residents, a civil penalty equal to 5% of the highest returns attached to an amended income tax return (except
aggregate balance/value over the six-year period of the for Forms 3520 and 3520-A, which are filed separately)
taxpayer’s foreign financial assets that were not reported with a statement of facts establishing reasonable cause.
or the income from which was not reported. Eligible taxpayers are those who are not under civil exami-
For taxpayers who reside outside the United States and nation or the subject of a criminal investigation by the IRS,
meet the non-residency test set forth in the SFCP guid- and who have not been contacted by the IRS regarding
ance, the IRS provides the Streamlined Foreign Offshore the delinquent information returns.
Procedures (“SFOP”) under which no civil penalty will On September 6, 2019, the IRS announced a new
be imposed. Under the Streamlined Domestic Offshore relief procedure for U.S. citizens who have relinquished
Procedures (“SDOP”), taxpayers who do not meet the or intend to relinquish their U.S. citizenship and seek to
non-residency test are only eligible for SFCP if all returns come into compliance with their U.S. tax and reporting
were filed—in other words, U.S. resident non-filers are obligations. Eligible individuals include those citizens
not eligible for streamlined treatment. Moreover, SDOP who:
taxpayers will pay a civil penalty equal to 5% of the high- ■ ■ Have relinquished their U.S. citizenship after March
est year-end balance of their unreported foreign financial 18, 2010;
accounts. ■ ■ Have no filing history as a U.S. citizen or resident;
The IRS is not automatically auditing tax returns sub- ■ ■ Have a net worth less than $2,000,000 at the time of
mitted under the SFCP. However, the IRS has made it expatriation and at the time of making their submis-
clear that it is reviewing these submissions and if the IRS sion under the relief procedures;
identifies any false statements or believes that the conduct ■ ■ Have an aggregate total tax liability of $25,000 or less
at issue was not only willful, but evidence indicates crimi- for the five tax years preceding expatriation and in the
nal violations, the IRS will refer those taxpayers to CI and, year of expatriation; and

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