The IRS Streamlined Filing Compliance Procedures let taxpayers whose failure to report foreign financial assets, and pay tax on them, was non-willful catch up on their returns and FBARs on defined terms. Eligibility turns on the facts, and the certification is signed under penalties of perjury.
What the procedures are for
The Streamlined procedures are for taxpayers who did not report foreign financial assets or pay tax on income from them because of non-willful conduct. The IRS defines non-willful conduct as conduct due to negligence, inadvertence, or mistake, or conduct that results from a good faith misunderstanding of the requirements of the law.
Taxpayers who believe their conduct may have been willful are directed to consider the IRS Criminal Investigation Voluntary Disclosure Practice instead.
Basic eligibility
To use either version of the Streamlined procedures, a taxpayer must:
- certify, under penalties of perjury, that the failures resulted from non-willful conduct;
- have a valid taxpayer identification number (or, where allowed, a pending ITIN application); and
- not be under civil examination by the IRS for any year, or under criminal investigation.
Once the IRS has opened a civil examination of the taxpayer’s returns, the Streamlined procedures are no longer available.
Two versions
Streamlined Foreign Offshore Procedures (taxpayers living abroad)
U.S. citizens and green card holders qualify for the foreign procedure only if, in at least one of the most recent three years covered, they did not have a U.S. abode and were physically outside the United States for at least 330 full days. Other individuals must not have met the substantial presence test for that period.
Eligible taxpayers file three years of delinquent or amended tax returns and six years of delinquent FBARs, along with Form 14653. Under this procedure, the IRS does not assert failure-to-file, failure-to-pay, accuracy-related, information return or FBAR penalties for the covered filings.
Streamlined Domestic Offshore Procedures (taxpayers living in the United States)
The domestic procedure applies to taxpayers who do not meet the non-residency requirement, who previously filed U.S. tax returns (if required) for each of the most recent three years, and who failed to report gross income from a foreign financial asset and pay tax as required because of non-willful conduct.
Eligible taxpayers file amended returns (Form 1040-X) for the most recent three years and delinquent FBARs for the most recent six years, along with Form 14654. They also pay a miscellaneous offshore penalty equal to 5% of the highest aggregate balance or value of the foreign financial assets subject to the penalty, measured using year-end balances and values across the covered tax return and FBAR periods.
What the procedures do not provide
Submissions are not acknowledged by the IRS, and the process does not end with a closing agreement. Returns filed under the procedures may be selected for audit under the IRS’s existing audit selection processes, and they remain subject to examination, additional tax and penalties, and criminal liability where appropriate.
The non-willful certification is the core of a Streamlined submission. It must explain the specific reasons for the failures and be consistent with the documents and any earlier statements.
Preparing a submission
A Streamlined submission generally involves:
- gathering statements for every foreign account and asset for the covered years;
- preparing the delinquent or amended returns, including any required international information returns;
- filing the delinquent FBARs electronically through FinCEN’s BSA E-Filing System;
- paying the tax and interest due (and, under the domestic procedure, the 5% penalty); and
- preparing the certification with a factual account of why the reporting was missed.
Other options
Taxpayers who reported all of their income but did not file certain international information returns, such as Forms 3520 or 3520-A, may be able to use the IRS’s delinquent international information return submission procedures, which allow a reasonable cause statement. Taxpayers whose conduct may have been willful should get advice before filing anything, because a Streamlined certification is a statement under penalties of perjury.
Unreported foreign accounts?
Tax attorney Cassra Minai, Esq. can review your situation in a confidential consultation.