- 1 Streamlined Filing Compliance Procedures
- 2 Purpose of the IRS Streamlined Filing Compliance Procedures
- 3 Three Main Components to IRS Streamlined Filing Compliance Procedures
- 4 Who is Eligible for the Streamlined Procedures
- 5 Taxpayers Must be Non-Willful
- 6 No Initiation of an IRS Civil Examination
- 7 Resolving Past Delinquent Quiet Disclosure
- 8 Tax Identification Number
- 9 OVDP or Streamlined
- 10 General Treatment under the Streamlined Filing Compliance Procedures
- 11 Current Year vs Prior Year Non-Compliance
- 12 Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
- 13 Need Help Finding an Experienced Offshore Tax Attorney?
- 14 Golding & Golding: About Our International Tax Law Firm
Streamlined Filing Compliance Procedures
In order to assist non-willful U.S. Taxpayers with undisclosed offshore accounts, assets, investments, and/or income who missed timely FBAR and FATCA — the IRS developed various Tax Amnesty Programs. When a non-willful U.S. Person owns offshore accounts, assets, investments, and income, they may be eligible to apply to the streamlined program. The Streamlined Filing Compliance Procedures are one of the more popular offshore amnesty programs — due to the reduced Title 26 Miscellaneous Offshore Penalty and “streamlined” filing requirements for prior year noncompliance. The Internal Revenue Service introduced the “stand-alone” Streamlined Filing Compliance Procedures in 2014. This was around the time foreign countries began entering into FATCA agreements (Foreign Account Tax Compliance Act) with the United States. As a result of the introduction of FATCA — along with enhanced FBAR compliance initiatives — the IRS increased enforcement of offshore reporting. This also led to a surge in internal reporting penalties for noncompliance. The IRS Streamlined Procedures are a form of international tax amnesty to safely assist Taxpayers before the IRS finds (and penalizes) them first. Under the Streamlined program, the offshore penalties for unpaid taxes are forgiven, and the applicant is either subject to a 5% Title 26 Miscellaneous Offshore Penalty (Domestic Streamlined) or a penalty waiver (Foreign Streamlined). With the Internal Revenue Service taking an aggressive approach to foreign accounts compliance and unreported foreign income, compliance is crucial to avoid Offshore Penalties — and the Streamlined Filing Compliance Procedures can be an effective approach for Taxpayers Worldwide. Our Board-Certified Tax Specialist Tax and Legal Team explains how the IRS Streamlined Procedures work:
Purpose of the IRS Streamlined Filing Compliance Procedures
The purpose of the IRS Streamlined Filing Compliance Procedures is to bring taxpayers into U.S. tax and reporting compliance. Specifically, it is to bring non-willful applicants with foreign income, assets, accounts, and investments into compliance. But, a person can disclose unreported U.S. income as well.
Before the streamlined procedures were available, non-willful taxpayers were stuck using OVDP and then opting out or trying to qualify for a very narrow “streamlined” exception. The Streamlined Filing Compliance Procedures include the domestic program and foreign program. Both programs are used to report offshore accounts, assets, and income, but the domestic program is for non-foreign residents, and the foreign program is for foreign residents.
Each program has its own set of requirements, but both programs require the taxpayer to be non-willful.
There are two versions of the streamlined program:
The two programs are similar but different.
Three Main Components to IRS Streamlined Filing Compliance Procedures
With the streamlined filing procedures, the taxpayer has three (3) main obligations:
File original or amended tax returns
File necessary informational returns and reporting forms, such as FBAR and FATCA Form 8938
Pay all necessary taxes and penalties
Under the terms of the IRS Streamlined Procedures, a taxpayer can to go back and file three (3) years of amended or original tax returns (Streamlined Foreign only) and submit International Information Returns such as the FBAR (Foreign Bank Account Reporting or FinCEN Form 114) for six (6) years.
Common international information returns include the following:
FATCA Form 8938
Who is Eligible for the Streamlined Procedures
While the eligibility requirements vary between the two streamlined programs, there are some general consistencies:
Taxpayers Must be Non-Willful
In order to qualify for either streamlined procedure, the taxpayer must be non-willful. Unfortunately, there is no bright-line test to determine non-willfulness. Still, there are many resources available online to assist you with making the determination.
The issue of non-willfulness is very important because the taxpayer must certify under penalty of perjury.
No Initiation of an IRS Civil Examination
If you are already under an IRS audit or examination, then you are disqualified from submitting to the streamlined program.
Because if you are already under IRS audit or examination, even if it is because of issues unrelated to the streamlined procedures, you are under obligation to update the auditor about the unreported foreign money.
*There are some complex issues involving self-incrimination and eggshell audits. You may want to speak with an attorney if you’re already under examination.
Resolving Past Delinquent Quiet Disclosure
If you were unaware of these procedures, and already submitted previously filed tax returns and/or information returns, you may still qualify for the streamlined procedures — but this presumes your prior actions were non-willful.
Tax Identification Number
The IRS requires that you have a Social Security number or valid Individual Taxpayer Identification Number (ITIN). But, if you do not have either, and do not qualify for a Social Security number, you can still apply.
The submission should include a request for the taxpayer identification number.
*If you qualify for a Social Security number, you cannot apply for an ITIN as an alternative.
OVDP or Streamlined
Even though OVDP has ended, the traditional VDP has picked up where OVDP left off. If you are submitting to the streamlined procedures, you do not also get to submit to VDP. In other words, let’s say you are unsure if you qualify as non-willful. If you submitted to IRS streamline procedures and are rejected – you cannot then go back and submit to VDP.
This is why it is crucial that you retain experienced counsel who specializes exclusively in this area of law to guide you through the tax and legal process of submission.
General Treatment under the Streamlined Filing Compliance Procedures
A common question is about how the taxpayer is treated in the program. Here are some key tips:
Can I Still be Audited after a Streamlined Disclosure?
Yes, you can still be audited after a streamlined disclosure.
Is there an Increased Chance of Audit?
No, entering the streamlined procedure does not increase the chance of an audit.
Because at the end of the day if you are in IRS offshore compliance, then the IRS does not have much in the way of issuing more penalties against you.
Do I Receive a Closing Letter?
You do not receive a closing agreement after submitting it to the program. If you submit to the domestic procedures, you should receive a confirmation letter later in the process. If you submit to the foreign procedures do not receive the same letter, since there is no penalty for the IRS to confirm.
Does the Streamlined Procedure provide Criminal Protection?
No. But, if you are non-willful, then you are not at risk for any IRS Special Agent investigation or criminal prosecution.
Current Year vs Prior Year Non-Compliance
Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.
Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties.
Need Help Finding an Experienced Offshore Tax Attorney?
When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.
Contact our firm today for assistance.