Delinquent FBAR

Folks, I am curious what your thoughts are concerning how to handle two years of delinquent FBARs for a U.S. citizen long-term resident overseas.  Both years' FBARs exclusively contain foreign accounts for which all U.S. tax has been paid (or none owed).  My understanding is that there are three paths for getting compliant:

1) Delinquent filing through the usual route, albeit with an attached statement explaining the tardiness

2) Offshore Voluntary Disclosure Program

3) Streamlined Procedures

At first glance, Streamlined Procedures sounds great: zero penalties for offshore residents as long as failure-to-file was "not willful."  Then I read all the end-of-earth scenarios if the IRS rejects the explanation / thinks it was willful (or "willfully blind!").

This then makes me think that simply filing them delinquently is best.  Quote from here:
http://www.irs.gov/Individuals/International-Taxpayers/Delinquent-FBAR-Submission-Procedures [nofollow]

"The IRS will not impose a penalty for the failure to file the delinquent FBARs if you properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted."

Hmmm.....   I am definitely interested in others' thoughts on this.

Both years' FBARs exclusively contain foreign accounts for which all U.S. tax has been paid (or none owed).

If this is the situation, then (IMHO) why would OVDP or Streamlined be considered? (OVDP should never be considered without professional advice.) There are no, or incomplete, delinquent 1040's to be filed.

1) Delinquent filing through the usual route, albeit with an attached statement explaining the tardiness.

This then makes me think that simply filing them delinquently is best.

"The IRS will not impose a penalty for the failure to file the delinquent FBARs if you properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted."

This seems to answer the situation. Is there something we're missing?

There are no, or incomplete, delinquent 1040's to be filed.
<...>  Is there something we're missing?

That is a great point.  Actually no returns have been filed yet.  However they are complete for both years and ready for filing.  Between FIE / FTC there is no tax owed for either year.

Unless there is an alternative suggestion the current plan is:
(1) mail them (cannot e-file due to tardiness)
(2) wait a couple of weeks to ensure they have been received (?) because they are mailed from a foreign locale
(3) submit tardy FBARs

IMHO - get the FBAR's filed sooner, rather than later. Don't wait until you've filed the 1040(s). The FBAR is on-line, and straight to Treasury, not the IRS.

If you want to make sure that your tax returns are received, use FedEx or UPS; costly, but you know when the returns were delivered.

Since both the tax returns and the FBARs are delinquent, the IRS would typically suggest using the generous spirit of their streamlined procedures.

Since both the tax returns and the FBARs are delinquent, the IRS would typically suggest using the generous spirit of their streamlined procedures.

Now that we know the 1040 filings are in fact delinquent, I agree. In this case, the Streamlined Procedure would be best. 

That is a great point.  Actually no returns have been filed yet.  However they are complete for both years and ready for filing.  Between FIE / FTC there is no tax owed for either year.

Unless there is an alternative suggestion the current plan is:
(1) mail them (cannot e-file due to tardiness)
(2) wait a couple of weeks to ensure they have been received (?) because they are mailed from a foreign locale
(3) submit tardy FBARs

As others have said Streamlined seems the best approach, but you still need to submit the FBARs on-line.

I originally intended using the Streamlined Procedure.  Then I read a bunch of very frightening stuff online about how the IRS may choose to determine the failure to file was willful (or "willfully blind" etc.) and deny the application.  Everything comes down to what is written in the "specific facts" section of Form 14653 (explaining failure to report income, submit forms, etc.).  To say that writing this section is intimidating is an understatement.

Part of me wonders whether I need to hire a tax attorney specifically to write that section (or whether they would even be interested, insisting on performing a complete package service beforehand - and therefore lots of billable hours that I cannot afford).

  Everything comes down to what is written in the "specific facts" section of Form 14653 (explaining failure to report income, submit forms, etc.).

Yes, that's true. You'll need to select your wording in such a manner that makes clear the late filing was not wilful avoidance. There's been no reports of filings being denied on the various public websites, but then we obviously don't hear the results from all filings.

Maybe I am missing something here, but using the common advice to provide the IRS exactly (and only) what they ask for, could this statement be as simple as:

"I am eligible for the Streamlined Filing Procedures.  All required FBARs have now been filed; and my failure to file tax returns, report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct"

Which is both truthful (or soon will be after I file the required FBARs later today), and pretty much exactly what is requested here:
http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-Outside-the-United-States [nofollow]

Any thoughts?

Maybe I am missing something here, but using the common advice to provide the IRS exactly (and only) what they ask for, could this statement be as simple as:

"I am eligible for the Streamlined Filing Procedures.  All required FBARs have now been filed; and my failure to file tax returns, report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct"

Which is both truthful (or soon will be after I file the required FBARs later today), and pretty much exactly what is requested here:
http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-Outside-the-United-States

Any thoughts?

I have no direct experience of this, but the procedure asks you to Provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs.

There is nothing in the nature of specific facts in your proposal, so I doubt if it is adequate.

I have seen several IRS notices and audits follow from self-prepared streamlined filings; but none from streamlined filings prepared by professionals experienced in this matter.

I have seen several IRS notices and audits follow from self-prepared streamlined filings; but none from streamlined filings prepared by professionals experienced in this matter.

guya thank you for this point.  I have read many of your posts, both on this forum and at least one other, and I believe that it's a fair statement to say that you are pretty conservative in your approach esp. PFICs and Trusts for foreign pensions.  I have also surmised that you are a tax professional, but certainly may be incorrect there.

In fairness I have put a lot of thought into your suggestion, and I will not be handing over my whole Streamlined Filing Procedures 'thing' to a professional because, frankly, I have already done 95% of the work myself.  I am unable to justify paying for that work twice: once through my hard efforts over the past month, and again for someone to, effectively, just submit my work for me and then charge me for the privilege.

However I am certainly interested in engaging a professional for the remaining 5%, which actually condenses into only the "specific facts" wording in Form 14653 (so maybe 1% is a better indicator?).  Can you recommend an international tax attorney that can quote his hourly rate?

hikingnola, you might be interested in reading some of these articles:

http://www.patellawoffices.com/blog/protecting-your-assets/new-warnings-in-the-irs-streamlined-filing-compliance-procedures/ (particularly the wording of the statement in paragraph #3).

http://www.massachusettstaxalert.com/2015/02/irs-clarification-on-non-willful-conduct-certification-for-streamlined-offshore-compliance-procedures-revisions-to-irs-forms-14654-and-14653/

http://the-tax-wars.net/2015/02/07/more-from-irs-on-non-willfulness-certification-under-streamlined-process/

What I gleaned from these articles is that there is nothing that will specifically 'get you off the hook', but providing as much info as possible in your narrative statement is crucial. Personally, I don't think a tax attorney has any insider information, and an attorney will only re-state the info you give, likely no more that the examples.

You are 2 years delinquent and owe no tax - contrast that with gazillionaires who have had offshore accounts for decades, are lawyered up to the hilt....and try to claim ignorance when caught. IMHO, the IRS and the Treasury Department generally can't be bothered with us small fry. Your comfort level may vary.

Your comfort level may vary.

vadio thank you so much for the links.  I have not read them yet, but intend to pour through them exhaustively.  I wanted to shoot this reply quickly because your statement is the most appropriately funny thing I have read in an otherwise dire-seeming situation.  Thank you for the perfect 'bon mot!'