Canada: Voluntary Disclosure Of Foreign Assets

The Internal Revenue Service (IRS) has announced it will begin to wind down the 2014 Offshore Voluntary Disclosure Program (OVDP) and close it entirely on Sept. 28, 2018. The program was one of four methods by which United States taxpayers could become compliant in their reporting obligations to the IRS:

  1. streamlined filing compliance procedures (domestic and foreign);
  2. OVDP;
  3. delinquent FBAR submission procedures; and
  4. delinquent international information return submission procedures.

While each of these programs will help a taxpayer in becoming current with the IRS, determining which program is most appropriate requires an assessment of the circumstances necessitating the filings and whether the taxpayer is delinquent in the filing of their U.S. income tax returns or has no requirement to amend previously filed returns to include unreported income.

The IRS has identified the following information forms that carry the potential for imposition of penalties in connection with late or non-filing:

Form Purpose Penalty (in USD)
Form 114 (FBAR) U.S. citizens, residents and certain other persons must annually report their direct or indirect financial interest in, or signature authority over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the year. The civil penalty for willfully failing to file an FBAR can be a fine as high as the greater of $100,000 or 50 per cent of the total balance of the foreign financial account per violation. Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation. These penalty amounts are indexed to account for inflation.
Form 8938 The form reports the taxpayer's interest in certain foreign financial assets, including financial accounts, certain foreign securities and interests in foreign entities. Fines of $10,000 may apply for each return, with an additional $10,000 added for each month the failure continues, beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
Form 3520 Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts

Taxpayers must report various transactions involving foreign trusts, including creation of a foreign trust by a U.S. person, transfers of property from a U.S. person to a foreign trust and receipt of distributions from foreign trusts. This return also reports the receipt of gifts from foreign entities.
The fine for failing to file each of these information returns or for filing an incomplete return is the greater of $10,000 or 35 per cent of the gross reportable amount, except for returns reporting gifts, where the penalty is five per cent of the gift per month, up to a maximum penalty of 25 per cent of the gift.
Form 3520-A Information Return of Foreign Trust with a U.S. Owner

Taxpayers must also report ownership interests in foreign trusts by U.S. persons with various interests in and powers over those trusts.
The fine for failing to file each of these information returns or for filing an incomplete return is the greater of $10,000 or five per cent of the gross value of trust assets determined to be owned by the U.S. person.
Form 5471 Information Return of U.S. Persons with Respect to Certain Foreign Corporations

Certain U.S. persons who are officers, directors or shareholders in certain foreign corporations are required to report specified information.
The fine for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues, beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
Form 5472 Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business

Taxpayers may be required to report transactions between a 25 per cent foreign-owned domestic corporation or a foreign corporation engaged in a trade or business in the United States and a related party.
The fine for failing to file each of these information returns, or failing to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues, beginning 90 days after the taxpayer is notified of the delinquency.
Form 926 Return by a U.S. Transferor of Property to a Foreign Corporation The fine for failing to file each of these information returns is ten per cent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.
Form 8865 Return of U.S. Persons with Respect to Certain Foreign Partnerships

U.S. persons with certain interests in foreign partnerships use this form to report interests in and transactions of the foreign partnerships, transfers of property to the foreign partnerships and acquisitions, dispositions and changes in foreign partnership interests.
The fine is $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues, beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten per cent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Need to report previously unreported income?

Taxpayers who are either delinquent in the filing of their U.S. income tax returns or have the requirement to amend previously filed returns to include unreported income should use the streamlined filing compliance procedures or the OVDP.

Streamlined filing compliance procedures

The streamlined filing compliance procedures, in effect since 2012, are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part. The streamlined procedures are designed to provide taxpayers in such situations with:

  • a streamlined procedure for filing amended or delinquent returns;
  • terms for resolving their tax and penalty procedure for filing amended or delinquent returns; and
  • terms for resolving their tax and penalty obligations.

The modified streamlined filing compliance procedures are designed only for individual taxpayers, including estates of individual taxpayers. The streamlined procedures are available to U.S. individual taxpayers residing outside and within the United States. The specific eligibility requirements for the streamlined procedures for both non-U.S. residents (streamlined foreign offshore procedures) and U.S. residents (streamlined domestic offshore procedures) are as follows:

Taxpayers must certify that conduct was not willful.

Taxpayers using either of the streamlined procedures will be required to certify that the failure to report all income, pay all tax and submit all required information returns, including FBARs, was due to non-willful conduct. Non-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.

The IRS has not initiated a civil examination of the taxpayer's returns for any taxable year.

If the IRS has initiated a civil examination of a taxpayer's returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the streamlined procedures. Similarly, a taxpayer under investigation by the IRS Criminal Investigation division is also ineligible to use the streamlined procedures.

Taxpayers who have previously filed delinquent or amended returns must pay previous penalty assessments.

Taxpayers eligible to use the streamlined procedures who have previously filed delinquent or amended returns in an attempt to address U.S. tax and information reporting obligations with respect to foreign financial assets (so-called "quiet disclosures" made outside of the OVDP or its predecessor programs) may still use the streamlined procedures. However, any penalty assessments previously made with respect to those filings will not be abated.

Taxpayers who participate in the streamlined procedures need a valid Taxpayer Identification Number.

All returns submitted under the streamlined procedures must have a valid Taxpayer Identification Number (TIN). For U.S. citizens, resident aliens and certain other individuals, the proper TIN is a valid Social Security Number (SSN). Individuals who are not eligible for an SSN or an Individual Taxpayer Identification Number (ITIN) may not have their returns processed under the streamlined procedures. However, taxpayers who are ineligible for an SSN and do not have an ITIN may apply under the streamlined procedures if they include a complete ITIN application.

OVDP

Taxpayers who are concerned that their failure to report income, to pay tax and/or to submit required information returns was due to willful conduct and who therefore seek assurance that they will not be subject to criminal liability and potential substantial monetary penalties should consider participating in the OVDP immediately, before it is terminated. For more information, contact your local Collins Barrow office as soon as possible.

All income reported but didn't file all the forms?

Taxpayers who are not delinquent in the filing of their U.S. income tax returns and have no requirement to amend previously filed returns to include unreported income may use the delinquent FBAR submission procedures or the delinquent international information return submission procedures.

Delinquent FBAR submission procedures

Taxpayers may file delinquent FBARs according to the FBAR instructions if they:

  • have not filed a required Report of Foreign Bank and Financial Accounts (FBAR);
  • are not under a civil examination or a criminal investigation by the IRS; and
  • have not already been contacted by the IRS about the delinquent FBARs.

The IRS will not impose a penalty for the failure to file the delinquent FBARs if the taxpayer properly reported the income associated with the accounts on their U.S. tax returns and paid any tax arising thereon. Additionally, the taxpayer must not have been contacted previously regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.

Delinquent international information return submission procedures

Taxpayers may file delinquent information returns with a statement of all facts establishing reasonable cause for the failure to file if they:

  • have not filed one or more required international information returns;
  • have reasonable cause for not timely filing the information returns;
  • are not under a civil examination or a criminal investigation by the IRS; and
  • have not already been contacted by the IRS about the delinquent information returns.

The reasonable cause statement should contain a description of the facts and circumstances leading to the original non-filing of the information returns, and will usually seek to establish that the taxpayer used all ordinary business care and prudence in determining the filing was unnecessary. The IRS will then assess whether reasonable cause for non-filing exists.

As part of the reasonable cause statement, taxpayers must also certify that any entity for which the information returns are being filed was not engaged in tax evasion. If a reasonable cause statement is not attached to each delinquent information return filed, penalties may be assessed in accordance with existing procedures.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Davies Ward Phillips & Vineberg
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Davies Ward Phillips & Vineberg
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions