Prospective Compliance
Filing accurate 2014 tax returns, and/or FBAR's, but not self correcting prior years.
Prospective Filing of US returns
It is come to our attention that some tax advisors, either US or foreign, are advising their clients to file US tax returns, including FBAR returns, prospectively from 2013 which is due on April 15, 2014 and can be extended for nonresidents through December 15, 2014. Their line of thinking is that will be several years before the IRS can use the information obtained through FATCA reports and match it to US tax returns. Therefore they believe that by the time FATCA information becomes machine-readable and utilizable by the IRS to match against US tax returns; their clients will have several years of tax filings on record.
We see several deficiencies with this methodology including:
- It does not address the civil and criminal tax exposure for past filings,
- It misses out on the current programs available to address delinquent tax filings,
- It vitiates a reasonable basis defense, since the intentional filing of future returns can be interpreted as intentional failure to file the delinquent returns, and
- It completely ignores that the IRS computers routinely issue notices to first-time filers requesting prior-year returns.
This course of action does not provide the advantages of certainty and minimizing exposure, as provided in the above-mentioned alternatives.
Prospective Disclosures
Advantages Over Quiet Disclosure
- Less Chance of Scrutiny
- Lower Transactional Costs
Advantages Over Streamlined
- No 5% Streamlined penalty for those with Reasonable Cause
Disadvantages
- More chance of Criminal Exposure if picked up on Audit
- Accuracy Penalty may be imposed if there is no Reasonable Cause
- Statute of Limitations on assessment remains open based on failure to file Form 8938 until 3 years after the form is filed. IRC Section 6501(c)(8)