In this podcast, I discuss how to calculate the 5 percent miscellaneous offshore penalty under the streamlined domestic procedures.
The miscellaneous offshore penalty is equal to 5 percent of the highest aggregate balance/value of the taxpayer’s foreign financial assets that are subject to the miscellaneous offshore penalty during the years in the covered tax return period and the covered FBAR period. For this purpose, the highest aggregate balance/value is determined by adding the year-end account balances and year-end asset values of all the foreign financial assets subject to the miscellaneous offshore penalty for each of the years in the covered tax return period and the covered FBAR period and selecting the highest aggregate balance/value from among those years.
A foreign financial asset is subject to the 5-percent miscellaneous offshore penalty if the asset should have been, but was not, reported on an FBAR (FinCEN Form 114) for that year. A foreign financial asset is subject to the 5-percent miscellaneous offshore penalty in a given year in the covered tax return period if the asset should have been, but was not, reported on a Form 8938 for that year. A foreign financial asset is also subject to the 5-percent miscellaneous offshore penalty in a given year in the covered tax return period if the asset was properly reported for that year, but gross income in respect of the asset was not reported in that year.
For information on the meaning of foreign financial asset, see the instructions for FinCEN Form 114 and the instructions for Form 8938. For example, foreign financial assets may include:
financial accounts held at foreign financial institutions; financial accounts held at a foreign branch of a U.S. financial institution; foreign stock or securities not held in a financial account; foreign mutual funds; and foreign hedge funds and foreign private equity funds.