Voluntary Disclosure & Foreign Accounts

Common penalties clients worry about

The Cost of Noncompliance

Unreported foreign income or accounts can trigger severe IRS penalties, even when the failure was unintentional. The IRS offers voluntary disclosure programs that allow taxpayers to come into compliance and reduce or eliminate penalties, provided they act before the IRS initiates contact.

FBAR Penalties

Up to $10,000 per account, per year for non-willful violations. Willful violations can result in penalties of 50% of the account balance per year.

Failure to File

5% of unpaid tax per month, up to 25% of total liability, for each unfiled return.

Accuracy Penalties

20% of any underpayment resulting from negligence or substantial understatement.

Information Reporting

Failure to file forms like Form 8938 or Form 5471 can result in penalties starting at $10,000 per form, per year.

Criminal Exposure

Willful failure to file can result in prosecution, fines, and imprisonment in serious cases.

Acting first matters

Relief programs are available only if you come forward before the IRS initiates contact with you.

IRS Streamlined Filing Procedures

Programs for non-willful taxpayers

The IRS offers streamlined procedures for taxpayers whose failure to report foreign income or accounts was non-willful — meaning the failure resulted from negligence, inadvertence, or mistake, not intentional disregard of tax obligations.

Streamlined Foreign Offshore Procedures

Available to taxpayers who reside outside the United States and meet the physical presence test (at least 330 days outside the U.S. in one of the three prior years). Requires filing three years of tax returns, six years of FBARs, and a certification statement explaining your non-willful conduct.

Penalty relief: all FBAR and failure-to-file penalties are waived
You pay only tax and interest on unreported income
Physical presence test applies

Streamlined Domestic Offshore Procedures

Available to U.S. residents with unreported foreign income or accounts. Requires the same filings as the foreign procedures, but includes a 5% penalty calculated on the highest aggregate balance of unreported accounts.

All FBAR and failure-to-file penalties waived
Except the 5% miscellaneous offshore penalty
For U.S. residents

Delinquent Filing Procedures

For taxpayers with late FBARs or international information forms but no unreported income, a delinquent filing path may be the appropriate and lighter option.

Late FBARs and international forms
No unreported income
Reasonable cause statement

Traditional Voluntary Disclosure

For cases involving potential criminal exposure, the traditional voluntary disclosure practice is the appropriate route. Eligibility and timing are critical and must be evaluated carefully.

Potential criminal exposure
Eligibility and timing evaluated first
Handled with full discretion

Good to Know

Frequently Asked Questions

If you are unsure whether past filings were complete, it is usually worth reviewing before the IRS contacts you. The relief programs are only available if you come forward first — that timing is the single most important factor.

Non-willful means the failure resulted from negligence, inadvertence, or mistake — not intentional disregard of your tax obligations. Whether conduct qualifies as non-willful is a facts-and-circumstances analysis, and it determines which program fits.

It depends on residency. The Foreign Offshore Procedures apply if you reside outside the U.S. and meet the physical presence test. The Domestic Offshore Procedures apply to U.S. residents and include a 5% miscellaneous offshore penalty. We evaluate eligibility before choosing a path.

There are delinquent filing procedures for exactly that situation — late FBARs or international information forms with no unreported income. It is generally a lighter path, but the facts have to support it.

Then the traditional voluntary disclosure practice is the appropriate route, and eligibility and timing must be evaluated carefully and early. These matters are handled with complete discretion, and we coordinate with counsel where appropriate.

Voluntary Disclosure