- 1 TL;DR
- 2 Streamlined Disclosure
- 3 Streamlined Foreign Offshore Procedures (SFOP)
- 4 Streamlined Domestic Offshore Procedures (SDOP)
- 5 If You Didn’t File Original Returns, Can you Qualify for SDOP?
- 6 Can I file Returns First and then do the Program?
- 7 If you do not Qualify for Streamlined Domestic, What are my Other Options if I was Non-Willful?
- 8 Golding & Golding, A PLC
Can I File a Streamlined Disclosure if I Didn’t File Original Tax Returns?
As with anything in tax (and life)…it depends.
If you qualify for the Streamlined Foreign Offshore Procedures (SFOP), you can file Original (late) returns in the program.
If you qualify for Streamlined Domestic Offshore Procedures (SDOP) and do not qualify for SFOP, you cannot file original returns in the program.
But, even if you didn’t did not file original tax returns, you may still qualify for SDOP.
When a person realizes that they are out of compliance for not properly disclosing their offshore and foreign income, assets, accounts, and/or investments, and they contact us – they are usually ready to get into compliance, and have conducted some online research (for better or for worse).
Unfortunately, by time some clients contact us, their head is already spinning from all the mis-information they received from their “free” initial consultations, or conversations with inexperienced counsel.
One common issue we come across is that a person is told they can enter the Streamline Domestic Offshore Procedures program even if they have not filed tax returns for prior years (when they were required to do so).
While a person does not have to have filed timely tax returns to qualify for the Streamlined Foreign Offshore Procedures, the rules are a little different for Streamline Domestic Offshore Procedures.
Streamlined Foreign Offshore Procedures (SFOP)
In order to qualify for Streamlined Foreign, you generally must:
- Provide a non-willful certification
- Qualify as a Foreign Resident
- Having filed original tax returns each year is not a prerequisite.
Streamlined Domestic Offshore Procedures (SDOP)
In order to qualify for Streamlined Domestic, you generally must:
- Provide a non-willful certification
- Filed original, timely tax returns each year within the compliance period (if you were required to)
If You Didn’t File Original Returns, Can you Qualify for SDOP?
There are four (4) common scenarios to consider:
Still Not Required to File a U.S. Tax Return
If a person was not required to file a tax return — usually because they are below the threshold for filing — they would not be disqualified from the program.
In other words, if a person was not required to file a return because they were below the threshold for filing a return, they are not disqualified from the program.
Note: It presumes they are still below the threshold when the unreported foreign income is taken into consideration as well..
*If the additional income still does not require them to file a return there may be an alternative amnesty programs available, with a complete penalty waiver vs. 5% Streamlined Domestic Penalty.
When Foreign Income is Included, You Are Over the Filing Threshold
If after a person includes their foreign (unreported) income as part of their total income, the person is no longer below the threshold for filing a tax return, and would have had to file the return had all the U.S. and foreign income been included — this would presumably disqualify them from the Streamlined Domestic Offshore Procedures.
Why? Because they should have filed the return.
In other words, they were actually always above the threshold the whole time — they just hadn’t included the foreign income — and should have filed an original return vs. filing an original return, but not including the foreign income.
*It requires a strategy analysis of your options with qualified counsel.
Required to File an Original Return, but did not File a Return
If the person was required to file tax returns, but did not do so then they generally cannot submit to the Streamline Domestic Offshore Procedures.
Why? Because in order to submit to the streamlined domestic offshore procedures, a person is able to amend their tax returns, but not file original tax returns.
As provided by the IRS:
“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, submit a complete and accurate amended tax return using Form 1040X, Amended U.S. Individual Income Tax Return, together with any required information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621) even if these information returns would normally not be submitted with the Form 1040 had the taxpayer filed a complete and accurate original return.
You may not file delinquent income tax returns (including Form 1040, U.S. Individual Income Tax Return) using these procedures.”
Filed Original Late Tax Returns
If a person did file original tax returns, but filed them late, then generally they do not qualify for Streamlined Domestic Offshore Procedures, because the “filing tax returns” in the instructions, presumes they were filed timely.
Still, based on discussions we have had with the IRS — depending on a person’s specific facts and circumstances, a person may be able to qualify for SDOP.
It is a totality of the circumstances situation, which has pros and cons you should be considered after a comprehensive analysis and evaluation by an experienced attorney.
Can I file Returns First and then do the Program?
No, that would be considered a Quiet Disclosure.
In other words, by “mass filing” late tax returns, international forms, etc. without entering one of the programs that is considered a quiet disclosure – even if your intent is to submit to the streamline program after doing so.
Because how does the IRS really know you will file —
If you do not Qualify for Streamlined Domestic, What are my Other Options if I was Non-Willful?
If it turns out that you do not qualify for the Streamlined Domestic Offshore Procedures or you prefer to submit but seek a penalty waiver (presuming you do not qualify for the Streamline Foreign in which offshore penalties are waived), you may consider making a Reasonable Cause submission to the IRS.
Generally, avoiding an IRS penalty puts you in a much better position than trying to remove (abate) an already issued penalty.
Golding & Golding, A PLC
We have successfully represented clients in more than 1,000 streamlined and voluntary disclosure submissions nationwide and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.