Correcting a Good Faith Misunderstanding to Avoid Penalties

We helped a U.S. citizen avoid substantial penalties after he received inaccurate tax advice on his filing requirements for foreign earned income. He had been told that the foreign earned income exclusion would reduce his taxable income to zero and had no filing obligation. However, he still had a U.S. tax filing requirement in order to use the foreign earned income exclusion.

We advised him to file amended returns using the Foreign Offshore Streamlined Filing Procedures (FOSFP). To avoid perjury, he had to truthfully certify that his actions were non-willful.

With FOSFP, the IRS will forgive non-willful conduct that can be proven to be "the result of a good faith misunderstanding of the requirements of the law." A person making that claim must have previously unreported income, cannot be under IRS examination and must have a valid tax identification number.

We helped the taxpayer submit a clear explanation of the specific reasons why the income was not reported and returns were not filed. Under the terms of the program, he was expected to comply with U.S. tax laws for all future years and file returns according to regular filing procedures. And we've made sure he has.