5 Things Taxpayers Must Know About the Streamlined Program

Streamlined Disclosure

5 Things to Know About IRS Streamlined Disclosure  

There are many different IRS Offshore Amnesty programs that U.S. taxpayers can apply to when they have previously undeclared foreign accounts, assets, investments, and income. Out of all the different available programs, the Streamlined Filing Compliance Procedures (aka Streamlined Disclosure) is one of the most used programs for non-willful taxpayers. There are two versions of the program depending on whether the taxpayer qualifies as a domestic resident (5% Penalty) or a foreign resident (Penalty Waiver). At Golding and Golding, our international tax law specialist team has represented thousands of taxpayers with all different types of offshore disclosure submissions, across 85 different countries. While we have prepared hundreds of articles, blogs, and video presentations on matters involving the streamlined disclosure process and procedure, here is an updated version of the five important things a taxpayer should know about making a streamlined disclosure.

Original Publication Date, 3/2017.

Am I Willful or Non-Willful? 

Unfortunately, there is no specific test to determine whether a person is willful or non-willful. Instead, the Internal Revenue Service looks at the facts and circumstances as a whole, and then based on the totality of the circumstance, will determine whether the taxpayer is willful or non-willful. It is a very subjective analysis, and therefore two reasonable and rational IRS examiners who examine the same set of facts and circumstances may come to different conclusions as to willfulness and non-willfulness. That is why it is crucial that taxpayers carefully frame any submission to the IRS.

What if My Spouse Will Not Sign the Certification Form?

Even if your spouse will not sign the certification form, you can still submit it to the IRS under the Streamlined Procedures. 

As provided by the IRS:

• • • “We understand that in certain cases (including but not limited to separation or divorce), your spouse/former spouse may not be willing to sign joint amended income tax returns or a joint certification on Form 14654. You may submit a joint amended income tax return with only your signature to Streamlined Domestic Offshore Procedures so long as your joint amended return shows a net increase in tax. Please explain your inability to secure your spouse’s/former spouse’s signature in the narrative statement of facts on Form 14654. And write “SDO FAQ 14″ in red ink in the area for your spouse’s signature on the amended returns and Form 14654. As a matter of routine processing, the Service will request the other spouse’s signature on joint amended returns with only one signature. If at the time the Service makes a request for your spouse’s/former spouse’s signature on a joint amended return or joint certification you are still unable to secure your spouse’s/former spouse’s signature, please respond to the inquiry by referencing this FAQ.”

Can I Waive or Negotiate the 5% penalty?

No. If you decide to “go streamlined” the 5% penalty cannot be waived. As part of the Streamlined Procedures, the 5% penalty cannot be waived.

As provided by the IRS:

• • • “I acknowledge the possibility that amended income tax returns I am submitting under the Streamlined Domestic Offshore Procedures may report income for tax years beyond the three-year assessment limitations period under I.R.C. § 6501(a). Other assessment limitations periods in I.R.C. § 6501 may allow the Internal Revenue Service to assess and collect tax. If I seek a refund for any tax or interest paid for the omitted income that I am reporting on my amended income tax returns because I feel that my payments were made beyond the assessment limitations period, I understand that I will forfeit the favorable terms of the Streamlined Procedures.”

Is my Foreign Real Estate Penalized? 

If you opt for streamlined, the value of the real estate is not calculated into the penalty – unless the real estate is held in a foreign corporation and that foreign corporation cannot be disregarded (such as a Sociedad Anonima)

Do I include Tax-Free Earnings Abroad?

The United States is one of only a handful of countries that taxes individuals on their worldwide income. That means that whether or not you reside in the United States or a foreign country, you are required to report all of your US income as well as foreign-sourced income on your US tax return. It also does not matter if the income you earn is tax-exempt in a foreign country, or whether the income you earn in a foreign country was already taxed. While you may be able to obtain a credit or exemption for the taxes you paid or income you earned in a foreign country, you are still required to report the income on your US tax return.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and 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. 

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.