Purpose of the streamlined procedures
In June of 2014 the IRS made significant changes to its offshore voluntary compliance programs. The changes provide a new avenue for taxpayer to comply with their US foreign account activity disclosure obligations. The streamlined filing compliance procedures described below are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part. The streamlined procedures are designed to provide taxpayers in such situations with:
- A streamlined procedure for filing amended or delinquent returns, and
- Terms for resolving their tax and penalty procedure for filing amended or delinquent returns, and terms for resolving their tax and penalty obligations.
The changes are intended to give thousands of people a new avenue to comply with their U.S. tax obligations.
Eligibility criteria for the streamlined procedures
The modified streamlined filing compliance procedures are designed only for individual taxpayers and estates of individual taxpayers. The streamlined procedures are available to both U.S. individual taxpayers residing outside the United States and U.S. individual taxpayers residing in the United States.
Taxpayers must certify that conduct was not willful
Taxpayers using either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures, will be required to certify, in accordance with the specific instructions set forth below, that the failure to report all income, pay all tax and submit all required information returns, including FBARs (FinCEN Form 114, previously Form TD F 90-22,1) was due to non-willful conduct.
IRS has initiated a civil examination of taxpayer’s returns for any taxable year
If the IRS has initiated a civil examination of a taxpayer’s returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the streamlined procedures.
Taxpayers who want to participate in the streamlined procedures need a valid Taxpayer Identification Number
All returns submitted under the streamlined procedures must have a valid Taxpayer Identification Number. For U.S. citizens, resident aliens, and certain other individuals, the proper TIN is a valid Social Security Number (SSN).
General treatment under the streamlined procedures
Tax returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will be processed like any other return submitted to the IRS.
Returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will not be subject to IRS audit automatically, but they may be selected for audit under the existing audit selection processes applicable to any U. S. tax return and may also be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors, and other sources.
After a taxpayer has completed the streamlined filing compliance procedures, he or she will be expected to comply with U.S. law for all future years and file returns according to regular filing procedures.
U.S. Taxpayers Residing in the United States
Eligibility for the Streamlined Domestic Offshore Procedures
In addition to having to meet the general eligibility criteria described above, individual U.S. taxpayers, or estates of individual U.S. taxpayers, seeking to use the Streamlined Domestic Offshore Procedures described in this section must:
- Amend Tax Returns: For each of the most recent three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, file amended tax returns, together with all required information returns (e.g., Forms 3520, 3520-A, 5471, 5472,8938, 926, and 8621);
- FBARs: For each of the most recent six years for which the FBAR due date has passed, file any delinquent FBARs;
- Certification: Complete and sign a statement certifying (1) that the taxpayer is eligible for the program; (2) all required FBARs have been filed; (3) the failure to report all income, pay all tax, and submit all required information returns was nonwillful; and (4) the penalty amount included with the filing is accurate;
- Pay 5% Penalty: On the highest aggregate balance/value of the taxpayer’s foreign financial assets; and
- Pay Tax and Interest: Pay all tax due on the tax returns plus statutory interest for each of the late payment amounts
U.S. Taxpayers Residing Outside the United States
Eligibility for the Streamlined Foreign Offshore Procedures
The streamlined foreign offshore procedures for U.S. taxpayers residing outside the United States follow the same procedures as the Domestic Offshore Procedures, except that the taxpayer must be a nonresident, and the taxpayer can include returns not previously filed along with any amended returns for the most recent 3 years. Also another significant difference between the two programs is that taxpayers under the foreign program do not pay a 5% penalty.
A taxpayer who is eligible to use these Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures and who complies with all of the instructions will not be subject to accuracy-related penalties, information return penalties, or FBAR penalties. Even if returns properly filed under these procedures are subsequently selected for audit under existing audit selection processes, the taxpayer will not be subject to accuracy-related penalties with respect to amounts reported on those returns, or to information return penalties or FBAR penalties, unless the examination results in a determination that the original return was fraudulent and/or that the FBAR violation was willful.
Please contact us if you have any questions regarding the Streamlined Filing Compliance Procedures or other offshore filing options that may be available.