Coming into Compliance on Both Sides

The failures that bring families to this subject are rarely failures to pay tax. A United States person files the Report of Foreign Bank and Financial Accounts if the aggregate value of foreign financial accounts exceeds 10,000 dollars at any point in the year. The threshold is on the aggregate, it is not indexed, and it counts accounts over which the person has signature authority as well as accounts owned. A current account, a savings account and a German life policy with a cash value will cross it together without any of them being large.

Alongside it sits the statement of specified foreign financial assets, filed with the income tax return, with thresholds for a person living abroad of more than 200,000 dollars at year end or 300,000 dollars at any time for a single filer, and 400,000 or 600,000 dollars for a married couple filing jointly. It reaches more than bank accounts: foreign pension entitlements, interests in foreign entities, foreign insurance with cash value and foreign securities held outside a financial account are all specified assets. It does not replace the account report, which has a different threshold, a different filer and a different authority, and both are commonly required from the same person in the same year.

Then there is the reporting of foreign gifts and trusts. An inheritance from Germany is not taxable in the United States, but a United States person receiving more than 100,000 dollars in aggregate during a year from a non-resident individual or a foreign estate must report it, and the penalty is measured against the amount received rather than against any tax, because there is no tax. That is the structural feature of this area: the reporting failure costs more than the tax would have.

The streamlined foreign offshore procedures are the route most German-resident Americans need. They require that the failure was not wilful and that a non-residency condition is met, they involve amended or delinquent returns for a defined period together with the account reports and a certification of non-wilfulness, and they carry no miscellaneous offshore penalty. The certification is the part that deserves care: it is a statement of fact on which the whole route depends.

Where returns were filed but forms were missed, the delinquent international information return procedures are the narrower and simpler route. Where the conduct was wilful, the voluntary disclosure practice applies on different terms, and the analysis of which category the facts fall into is the first piece of work rather than a formality.

The German institution is the self-disclosure under section 371 of the Fiscal Code. It removes criminal liability, but only on strict conditions: it must be complete for all relevant years of the tax in question, it must be made before the matter is discovered or an audit is announced, and the tax and interest must be paid within the period set. Partial disclosure fails entirely, which is a different architecture from the American programmes and is the reason the German side cannot be approached incrementally.

German and American authorities exchange account information automatically. The practical effect is that a correction on one side can constitute discovery on the other, and in Germany discovery closes the self-disclosure route altogether.

That makes sequencing a substantive decision rather than an administrative one. The complete picture is assembled first, on both sides, before anything is filed anywhere: the accounts, the balances, the income, the entities, the trusts, the pension entitlements and the years. Only then is the order of filings decided.

It also makes speed valuable in a particular way. Both routes depend on acting before the authorities do, and both are closed by an audit or an enquiry. The window is not indefinite and it is not reopened by willingness to pay.

Correcting the record is a sequencing problem before it is a filing problem. The American programmes differ in their conditions and are not interchangeable; the German self-disclosure is complete or it is nothing; and because the two authorities exchange information, a step on one side can foreclose the other. The whole picture is assembled first, eligibility is established second, and only then is anything filed.