Streamlined Procedure Pros & Cons
When it comes to international tax and offshore compliance, one of the most popular offshore tax amnesty programs is the Streamlined Offshore Disclosure Program. The reason that the program is so popular, is that unlike the alternative traditional IRS Voluntary Disclosure Program (VDP), Taxpayers are only required to submit three (3) years of amended or original tax returns instead of six (previously eight under OVDP) and six years of FBARs (previously eight years of FBARs under the prior OVDP program). While many applicants want to submit to the Streamlined Procedures, not everybody qualifies. The problem is compounded by the bad information Taxpayer can find online about what the program offers, eligibility, non-willful certification preparation, etc. Here is a look at some of the Pros and Cons of the Streamlined Domestic and Streamlined Foreign Offshore Procedures.
Pros of Streamlined Procedures
There are many positive benefits to submitting to the Streamlined Procedures. Here are three important pros to the program:
Less Complicated Procedures than Offshore VDP
Unlike the offshore version of the Voluntary Disclosure Program, the Streamlined Procedures are less complex. There are fewer requirements and fewer steps needed to complete a Streamlined submission than Voluntary Disclosure — and unless the Taxpayer is audited or subject to examination by the IRS, they do not have to undergo an examination by an IRS agent/examiner. Since the program is less complex than other tax amnesty programs, Taxpayers are able to effectively obtain the necessary information and make their way through the program while regaining peace of mind.
Fewer Tax Returns are Required than in Offshore VDP
Most Taxpayers do not hold on to their own tax returns, because quite frankly, there is really no need for it beyond the general three-year statute of limitations. By entering the Streamlined Procedures, Taxpayers only have to amend three years of tax returns, which means less time digging through the crates, trying to piece together old returns. In the old days, Taxpayers had to amend eight (8) years of returns (and it could be very difficult to obtain that information); so the Streamlined Procedures are a welcome change.
Lower Penalties than Offshore VDP
Unlike the voluntary disclosure program that carries a baseline 50% FBAR penalties, under the Streamlined Procedures, Taxpayers are only penalized 5% — or even a complete penalty waiver if they qualify for the Streamlined Foreign Offshore Procedures.
Cons to the Streamlined Procedures
While the Streamlined Procedures are a great program, there are some negatives to submitting to the program that Taxpayers should be aware of:
No Closing Letter
One great benefit of the Offshore Voluntary Disclosure Program is that Taxpayers receive a closing letter Form 906—which essentially recognizes that the matter is complete from the IRS standpoint — presuming the Taxpayer made full and truthful disclosure. Under the Streamlined Domestic Offshore Procedures (for US Residents with foreign accounts), taxpayers receive an acknowledgment letter but it is not a closing letter. Under the Streamlined Foreign Offshore Procedures, there is no penalty letter received since there is no penalty.
Possible Audit
By entering the Streamlined Procedures, a Taxpayer can still be audited even if they make their way successfully through the program. For this reason, it is important that Taxpayers retain experienced tax preparation and counsel in a flat-fee, full-service model.
Were You Really Willful?
If a Taxpayer qualifies as willful, they are no longer eligible for the Streamlined Procedures. There are some attorneys and tax practitioners who will still take a client through the Streamlined Procedures, even if they are willful. Unfortunately, this puts the client in an incredibly difficult position, since it is the client who gets in the most trouble.
Late Filing Penalties May Be Reduced or Avoided
For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.
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 who 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.
*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.
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.