In January 2016 the IRS released a revised Form 14653 Certification by U.S. Person Residing Outside of the United States for Streamlined Foreign Offshore Procedures, which includes new directions concerning the required narrative disclosure.
A US taxpayer residing outside of the United States is eligible to file under the streamlined foreign offshore procedures if she meets (1) the non-residency requirement and (2) wilfully failed to file FBARs, report income from a foreign financial asset, or pay tax as required by US law. Non-wilful conduct is discussed in Non-Wilful Conduct and IRS Compliance. (See “Non-Wilful Conduct and IRS Compliance”, Canadian Tax Highlights August 2014). Form 14653 is crucial because it certifies that a taxpayer or an estate did not wilfully or deliberately fail to file a US return or FBAR or report income and pay tax. Revised form 14653 and the IRS Streamlined Filing Compliance Procedures for U.S. Taxpayers Residing Outside of the United States Frequently Asked Questions and Answers (question #6) now require a more robust answer that shows that the taxpayer’s conduct was not willful. Both the FAQ and form 14653 (printed in boldface) now require the following:
Provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Include the whole story including favorable and unfavorable facts. Specific reasons, whether favorable or unfavorable to you, should include your personal background, financial background, and anything else you believe is relevant to your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Additionally, explain the source of funds in all of your foreign financial accounts/assets. For example, explain whether you inherited the account/asset, whether you opened it while residing in a foreign country, or whether you had a business reason to open or use it. And explain your contacts with the account/asset including withdrawals, deposits, and investment/management decisions. Provide a complete story about your foreign financial account/asset. If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice.
Revised form 14653 now also requires that a taxpayer certify whether she was out of the United States for at least 330 days in any or all of the three years for which the US tax return due date has passed.
The comprehensive information sought by the IRS may indicate that the IRS is becoming less patient with taxpayers who have not come forward since the program began in 2009. The above disclosure regarding failure to file, report, or pay also illustrates the difficulty in establishing non-wilful conduct for failure to file a US income tax return or an FBAR or report income and pay tax. A taxpayer should also be cautioned that certification is deemed made under penalty of perjury: the IRS can seek a felony conviction, a maximum fine of $100,000, and/or up to 3 years imprisonment (Code section 7206) against a taxpayer who wilfully makes an incorrect statement. Under Code section 7207 the IRS can also impose a maximum penalty of $10,000 or up to one year’s imprisonment for wilfully providing a false statement.