We can start with the bad news. Only US individuals and US estates qualify for the Offshore Streamlined Disclosure Program. So what should you do if you have an interest in a C-Corp, an S-Corp, a US Partnership or a US trust that has undisclosed offshore income and foreign accounts? Join the French Foreign Legion? Liquidate everything and bet it all on "red?" Wear a suit made out of patched-together leather and wander about the Northeast United States?
Before you make any life-altering decisions, read on for some other options.
If you can call the shots on your US Corporation (C or S Corp), Partnership or Trust
If you are able to decide to disclose or not… without any repercussions from shareholders, partners, trustees, beneficiaries — may I be so bold as to suggest that you enter into the Standard Offshore Voluntary Disclosure Program under the 2014 protocols?
There is a large amount of compliance work involved, and may include:
- up to 8 years of amended tax returns, 1120 for C-Corps, 1120-S for S-Corps, 1065 for partnerships, and possible changes to a personal 1040.
- Amended or completed FBARs/FinCEN Form 114
- A corporate Form 5471 and/or Form 5472.
- Trust forms 3250 and/or 3250A
- Partnership Form 8865
- Specializing accounting for any PFIC investments
There is also the unpaid taxes, accuracy-related penalties, and interest. Typically the biggest issue: the Offshore Penalty. Currently, it is at 27.5% on the highest account balances within the disclosure periods (and unlike the Streamlined Program, the penalty attaches to foreign commercial property). For some account holders, the default offshore penalty is 50%. Yet, you can still opt-out for a lower penalty. Here is an article on opt-out experiences.
The other problem with OVDP for US corporations, Partnerships, and Trusts
This is the thing about these types of entities. Rarely are they in the control of just one person. You may have one or more stockholders, partners, trustees, or beneficiaries who want to go through the OVDP, and one or more person that may not. You may have one or more persons who acted willfully, and you may have one or more that did not. You may have some owners of the foreign assets who aren't even US persons. So what should you do in these situations?
These are tricky areas — situations like this typically require soft-persuasion. These types of offshore disclosures commence like a custody battle where all parties have different ideas on how to raise a child. We have even had a situation where one spouse wanted to disclose but the other spouse did not. The good news is usually we find what is missing is education about the entire program and the other alternatives. Many, many people have been given bad advice, and once they have the correct information, they are in a better position to make the optimum choice — together.
Note: Owners of disregarded US Limited Liability Companies with undeclared offshore accounts and income may still qualify for the Streamlined OVDP.
