How Founders and Investors Fix Offshore Tax Issues
Going global is exciting until the tax reporting follows you home. Many founders and high-net-worth individuals build foreign connections without realizing they’ve entered an entirely different compliance world.
A foreign bank account tied to a second passport, a seed-round investment flowing through a non-U.S. entity, a pension from an old overseas job, or a crypto exchange that happens to be based abroad, all of these can quietly trigger U.S. filing obligations.
By 2026, the IRS expects full transparency, and penalties for missing foreign reporting can be severe. If your FBARs, FATCA filings, or international forms are years behind, the good news is that you still have options. The challenge is choosing the right path.
This guide breaks down the major programs (Streamlined, Voluntary Disclosure, reasonable-cause filings) and shows how to decide which one best protects you.
FBAR vs. FATCA
The U.S. enforces two main foreign reporting laws, each with specific goals. Penalties for failing to file FATCA or FBAR forms can be harsh. For example, FATCA fines start at $10,000 and can go up to $50,000, and the IRS may apply a 40% accuracy penalty on unreported income associated with those assets.
FBAR penalties vary greatly depending on whether the violation was intentional and, often, on whether fixing the issue is simple or catastrophic.
Furthermore:
- FBAR (FinCEN 114) applies when the combined value of all your foreign financial accounts exceeds $10,000 at any point during the year. It’s a simple threshold, but people trip over it because “foreign financial account” is broader than you’d think; bank accounts, investment accounts, certain crypto platforms, and even some prepaid cards abroad can count if they hold money.
- FATCA (Form 8938) focuses on broader categories of foreign assets, not just accounts. The thresholds are higher, and they depend on your filing status and residency. For most U.S. residents, Form 8938 kicks in once total specified foreign assets exceed $50,000 at year-end or $75,000 at any time. Expat thresholds are much higher.
The Best Option If You Weren’t Willful
Suppose your offshore mistakes were truly accidental, maybe a foreign bank didn’t send U.S. tax forms, or you were never told about FBAR obligations. In that case, the Streamlined Filing Compliance Procedures are usually the cleanest path.
Under the Streamlined Domestic program, U.S. residents file three years of amended tax returns, six years of FBARs, and certify under penalty of perjury that they were non-willful. In exchange, the IRS applies a relatively modest 5% penalty to the highest year-end value of your foreign financial assets.
For U.S. taxpayers who qualify as non-residents under the program’s definition, the Streamlined Foreign program waives the 5% penalty entirely. You still file the returns and FBARs, but no offshore penalty is imposed.
Streamlined is ideal when you can credibly explain that your noncompliance stemmed from oversight, misunderstanding, or bad advice.
The Safer Route If There’s Willfulness Risk
When there is any chance the IRS could argue you were willful, the Streamlined programs are not safe. If you moved money after learning about reporting duties, ignored prior professional warnings, used nominee structures, or knowingly failed to disclose accounts, you are in Voluntary Disclosure territory.
The modern Voluntary Disclosure Practice (VDP) starts with a preclearance request and a full disclosure package. While penalties are higher than Streamlined, the IRS won’t pursue criminal charges if you comply.
For founders or investors who coordinated offshore accounts, intentionally formed foreign entities, or moved significant funds, VDP is often the only option that truly closes the door on criminal exposure.
Foreign Exchanges and Reporting Gaps
Crypto muddies the waters further. While FBAR rules have not been officially updated to require reporting of foreign accounts holding only digital assets, FATCA may still apply if the platform or wallet fits within the definition of a foreign financial asset.
Meanwhile, crypto income (staking, trading, token allocations) remains taxable, and failing to report it properly can expose you to both civil and criminal liability.
If you have crypto on foreign exchanges or DeFi platforms, you should assume that reporting will eventually catch up with regulation. Treat offshore crypto as reportable for safety and include it in your cleanup plan.
Entities, Trusts, and Foreign Funds
For entrepreneurs, offshore exposure isn’t limited to bank accounts. Owning a stake in a foreign corporation can require filing Form 5471. Holding an interest in a foreign partnership necessitates Form 8865. Foreign grantor trusts need to file Forms 3520 and 3520-A, and foreign funds may have PFIC exposure, which requires filing Form 8621.
A failure to file any of these forms can result in steep automatic penalties, often $10,000 per form per year. The IRS does offer a “delinquent international information return” procedure, but in recent years, it has warned that filing late does not guarantee penalty forgiveness.
Choosing the Right Offshore Cleanup Path
Evaluating willfulness is the hardest part. A single email, a conversation with a CPA, or a financial advisor’s warning can shift a case from “non-willful” into “high risk.” That’s why founders and high-wealth clients should never guess.
Choosing the right path comes down to three questions:
- Was your conduct non-willful?
If yes, Streamlined Domestic or Streamlined Foreign is usually best. - Is there any evidence of willfulness?
If so, Voluntary Disclosure protects you from criminal consequences. - Are only a few forms missing with very low risk?
Occasionally, reasonable-cause filings or delinquent information returns can still work, but only with careful narrative support.
Need Professional Help?
If you have foreign accounts, foreign entities, offshore crypto, foreign pensions, or unfiled FBAR or FATCA forms, now is the time to fix it. We’ll review your foreign footprint, identify all required filings, assess willfulness risk, and map your best path forward.
Book an offshore compliance consult and get a confidential, step-by-step cleanup plan specific to your situation.
