Understanding the IRS international compliance problems can be daunting. Some people are born in another country, have family members in another country, somebody passes away. Now they have a bank account or a piece of property that’s in their name. There are certain requirements when you file your tax return, you need to disclose these foreign assets, foreign income, foreign anything to the IRS. So when you’re going through this process and realizing that this needs to be disclosed, one of the issues is the prior year returns. The IRS wants to encourage compliance, they want people to come back and report this information.
Therefore, there are several programs that are available to individuals who want to come clean and want to get their information and their documentation organized and filed underneath a program. One of the programs was called the streamline program. There are two different parts. There’s the streamline disclosure for foreign individuals, and the streamline disclosure for domestic individuals. This is a great program that’s available for individuals to go back and disclose their income and their assets to the IRS. If you are based in the United States, when you need to file through the program, you generally need three years of amended tax returns. It’s important to understand each one of your foreign assets, whether it’s property, whether it’s a bank account, whether it’s a trust or a mutual fund; however you are holding that asset, that it is disclosed to the government through these forms. Because you have an asset in another country doesn’t mean you’re going to necessarily be paying tax on that asset. This is to allow people to come into compliance with the government to make sure going forward, that they’re aware of it in the event there is any income on that asset, that you would be disclosing it to the government.
Making sure you understand your different compliance routes, whether it’s a streamlined program for domestic or foreign, or potentially the OVDP program, it’s really important to reach out to a tax attorney and a great international CPA to help guide you.
