IRS Quietly Terminates Long-Standing Offshore Compliance Program: What Options Remain For Taxpayers With International Tax And Reporting Noncompliance?

On July 1, 2026, the IRS quietly eliminated the Delinquent FBAR Submission Procedures, the long-standing administrative program that encouraged voluntary compliance by allowing taxpayers to file late Reports of Foreign Bank and Financial Accounts (FBARs), without penalty, provided that the taxpayer’s income had been properly reported and taxes paid.¹

FBAR Civil Penalties and Reasonable Cause

This abrupt change is unwelcome news to taxpayers as civil FBAR penalties can be significant:

•  “Non-willful” violations: $10,000 (adjusted for inflation)
• “Willful” violations: the greater of (i) $100,000 (adjusted for inflation), or (ii) 50% of the maximum account balance during the year

The IRS did not issue a public announcement or explanation of the change. Instead, its FBAR guidance now states only that filing delinquent FBARs “is a violation and may subject you to penalties.” The agency directs taxpayers who have not yet been contacted by the IRS to file late FBARs “as soon as possible to keep potential penalties to a minimum.” 

Despite the elimination of these procedures, penalty relief still exists for taxpayers through a “reasonable cause” exception. To qualify, taxpayers must demonstrate that their failure to file was due to reasonable cause (e.g., reliance on a tax professional, natural disasters, serious illness) rather than a lack of knowledge or willful neglect. This pathway imposes a higher burden of proof on taxpayers than the previous procedures, notably because courts have arguably defined “willful” beyond its ordinary meaning for civil FBAR penalty purposes.

For taxpayers with potential international tax and reporting deficiencies, the IRS’ decision also reflects a broader trend of the agency restricting the administrative options available for addressing past noncompliance.

Discretionary Elimination of Remedial Programs

Unlike tax laws, the IRS created remedial programs designed to help taxpayers come into compliance administratively. This allows the agency to revise or eliminate these programs at any time, without giving notice to taxpayers and regardless of how long a remedial program has been in place. Prior to the IRS’s latest elimination, the agency ended the Offshore Voluntary Disclosure Program in 2018 and quietly revised the penalty-assurance language in the Delinquent International Information Return Submission Procedures in 2020.

These actions by the IRS confirm that no remaining remedial program should be considered permanent.

Remaining Remedial Programs Available to Taxpayers

Three remedial programs remain for taxpayers to resolve past tax noncompliance:

• Voluntary Disclosure Practice (VDP): The successor to the Offshore Voluntary Disclosure Program, VDP remains the primary route for taxpayers who willfully failed to comply with tax laws to resolve their obligations and limit exposure to criminal prosecution. The current VDP framework generally includes a six-year disclosure period, 75% civil fraud penalty on the year with the highest tax liability and willful FBAR penalties (if applicable). The IRS is currently revising VDP, with changes expected to be announced later this year.
• Streamlined Filing Compliance Procedures (Streamlined Procedures): First offered in 2012 and since expanded and modified, the Streamlined Procedures are designed for taxpayers who certify their noncompliance was non-willful. The Streamlined Procedures offer reduced or eliminated penalties for late FBARs and delinquent or amended tax returns, including other international information returns, depending on whether the taxpayer is eligible for the domestic procedures or offshore procedures. Despite its tenure, the IRS may discontinue the Streamlined Procedures at any time.
• Delinquent International Information Return Submission Procedures: These procedures allow taxpayers not under civil or criminal investigation, and with reasonable cause, to submit delinquent international information returns. The IRS previously revised how it would impose penalties, and the program itself remains subject to unannounced elimination.

The Risks of Delayed Filing

Because remedial programs can be eliminated without notice, taxpayers who qualify for the remaining programs should not delay filing as penalties for several international information returns start at $10,000 per violation and escalate quickly.

For example, individuals have been assessed willful civil FBAR penalties for reckless disregard of a known or knowable filing obligation, meaning that taxpayers may still face penalties of the greater of $100,000 (adjusted for inflation) or 50% of the foreign account balance even without intentional concealment. Similarly, the penalty for failing to timely report large foreign gifts or bequests on Form 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts) can reach 25% of the value of the gift or bequest.

Taxpayers should take steps now to reduce potential civil and criminal penalties.

Take Action: Protect Your Compliance Options

Given the pace at which the IRS is changing or eliminating these programs, and the potential penalties at stake, taxpayers with unresolved international tax noncompliance should avoid waiting for the next remedial program to close before filing. Qualified legal counsel can assist taxpayers in navigating the requirements and consequences of each program and help reduce the risk of criminal exposure or significant monetary penalties.

If you have questions about your potential tax liability exposure or eligibility under the existing IRS remedial programs and procedures, please contact the authors or another member of our Tax Controversy team.

The authors would like to thank summer associate Avery Sirwatka for his assistance with this article. 

Footnote

1 A United States person (i.e., United States citizens, United States residents, entities created or organized in the United States or under the laws of the United States, and trusts or estates formed under the laws of the United States) must generally file an FBAR to report a financial interest in, or signature or other authority over, foreign financial accounts exceeding $10,000 in the aggregate at any point during a calendar year. For simplicity, the term “taxpayer” is used in place of “United States person” in the context of FBAR reporting obligations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.