Form 14654 (2023) IRS Certification for U.S. Persons for SDOP

Form 14654 (2023) IRS Certification for U.S. Persons for SDOP

Form 14654 

Form 14654: The IRS Form 14654 is the Certification by U.S. Person Residing in the U.S. The Form is part of the IRS Streamlined Domestic Offshore ProceduresThe Form has many traps and pitfalls — and requires the U.S. person to submit a non-willful statement under penalty of perjuryWith the Internal Revenue Service making foreign accounts compliance a key enforcement priority, it is crucial for taxpayers to get into (and remain) IRS-compliant for reporting offshore accounts, assets, income, and investments.  By submitting to the Streamlined Program for U.S. residents and agreeing to the Title 26 Miscellaneous Penalty, Taxpayers can avoid harsher penalties down the line. 

Certification by U.S. Person Residing in the U.S.

The Certification by U.S. Person Residing in the U.S. (Form 14654) is deceivingly complex. Depending on the nature of the offshore submission, the number of accounts, and which potential assets may be excluded or exempted, preparing the 14654 form can become a time-consuming undertaking.  It is important for the submission to be as timely and accurate as possible.

The form can be broken down into various subsections:

Certification Statement (Part I)

The IRS certification form begins with an introduction/certification:

      • “I am providing amended income tax returns, including all required information returns, for each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed.

      • I previously filed original tax returns for these years. The tax and interest I owe for each year are as follows”

This is merely an acknowledgment by the taxpayer that they missed some income in their original returns. It also presumes that the original returns were filed (which is not required for Form 14653)

3-Years of Tax Liability

Next, the Taxpayer must provide a summary of the taxes due, including:

      • Tax Year

      • Amount of Tax Due

      • Interest

      • Total

Assets Subject to Penalty

The assets refer to the assets of the Taxpayer that are subject to the 5% penalty. Noting, that some assets, such as personal Real Estate investments are not included. Meanwhile, other assets such as the Canadian RRSP are included on the FBAR and Form 8938 but NOT computed as part of the penalty.

How to Compute the Penalty

We have prepared our own summary and example of Title 26 Miscellaneous Offshore Penalty calculation.

5% Penalty Limitation

The IRS offers a single-year 5% penalty in lieu of all the other FBAR, FATCA, and other offshore penalties that a Taxpayer may be subject to.

      • In consideration of the Internal Revenue Service’s agreement not to assert other penalties with respect to my failure to report foreign  financial assets as required on FBARs or Forms 8938 or my failure to report income from foreign financial assets, I consent to the immediate assessment and collection of a Title 26 miscellaneous offshore penalty for the most recent of the three tax years for which I am providing amended income tax returns.

      • I waive all defenses against and restrictions on the assessment and collection of the miscellaneous offshore penalty, including any defense based on the expiration of the period of limitations on assessment or collection.

      • I waive the right to seek a refund or abatement of the miscellaneous offshore penalty.

      • I agree to retain all records (including, but not limited to, account statements) related to my assets subject to the 5% miscellaneous offshore penalty until six years from the date of this certification.

      • I also agree to retain all records related to my income and assets during the period covered by my amended income tax returns until three years from the date of this certification. Upon request, I agree to provide all such records to the Internal Revenue Service.

      • My failure to report all income, pay all tax, and submit all required information returns, including FBARs, was due to non-willful conduct. I understand that non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

      • I acknowledge the possibility that amended income tax returns I am submitting under the Streamlined Domestic Offshore Procedures may report income for tax years beyond the three-year assessment limitations period under I.R.C. § 6501(a). Other assessment limitations periods in I.R.C. § 6501 may allow the Internal Revenue Service to assess and collect tax.

      • If I seek a refund for any tax or interest paid for the omitted income that I am reporting on my amended income tax returns because I feel that my payments were made beyond the assessment limitations period, I understand that I will forfeit the favorable terms of the Streamlined Procedures.

      • I recognize that if the Internal Revenue Service receives or discovers evidence of willfulness, fraud, or criminal conduct, it may open an examination or investigation that could lead to civil fraud penalties, FBAR penalties, information return penalties, or even referral to Criminal Investigation.

Non-Willful Certification Statement

The IRS requires the Taxpayer to submit his or her own statement under penalty of perjury. This is the most important part of the submission.

As provided by the IRS:

      • You must provide specific facts on this form or on a signed attachment explaining your failure to report all income, pay all tax, and submit all required information returns, including FBARs.

      • Any submission that does not contain a narrative statement of facts will be considered incomplete and will not qualify for the streamlined penalty relief.

Applicants Must be Non-Willful

If you are willful, you do not qualify for the streamlined program and should try to craft a certification of non-willfulness statement. If you are willful, then your only option for formalized offshore disclosure is the traditional VDP.

Remember, willfulness includes:

Stay Focused

The certification statement asks for significant facts to substantiate your non-willfulness — but you are not tasked with writing a novel (no matter how good or interesting your story is). Typically, you should be able to integrate all of the necessary information for your non-willful certification within a page or so. Each person’s facts and circumstances are different, but typically no circumstance requires a 10-page summary.

Be Clear and Concise

The IRS agents are overworked and underpaid. If you could find a way to say the same sentence using seven words instead of 15 words, then you should do it. You should do your best to write — and rewrite — the statement as many times as necessary to get it to its most concise point – while still including all of the necessary information. If you are submitting your statement after writing it on your first go-round, you should reconsider, and possibly rewrite the statement a few more times before submitting it.

Always Play Nice with the Agents

The IRS agents are only doing their job; they do not have it out for you. Whether you want to believe that or not, we’ve been doing this for many years, and we can tell you most agents are not gunning for top positions at the IRS — it is just their job. They have a job to do, and they have certain protocols for accepting or rejecting a submission. There is no need to be rude to the agents. Be respectful and you will find that being respectful will go a long way (no matter how much you have a distaste for the IRS or the U.S. Government in general)

Double-Check the Form Instructions Before Submitting

The IRS periodically updates the program requirements and updates the version of the forms. It is important that you have met all the necessary requirements, both substantively and administratively — so that your submission has a lower chance of being rejected. The IRS is a government agency and not the most well-oiled machine. We have had situations where the IRS will send our client a bill asking for payment of the penalty, even after we have submitted the penalty and the IRS accepted and deposited the check. In other words, do your best to follow all directions but realize even if you do — the IRS may follow up with issues that you know you have already resolved and handled (and even in these situations, you should try to be respectful – no matter how hard it may be)

Signing Under Penalty of Perjury

The applicant will certify as follows:

      • “Under penalties of perjury, I declare that I have examined this certification and all accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete.”

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