Streamlined Filing Compliance Procedures

Streamlined Filing Compliance Procedures

Streamlined Filing Compliance Procedures

The IRS Streamlined Filing Compliance Procedures have been a stand-alone Internal Revenue Service offshore disclosure option since mid-2014. The current version of the Streamlined Filing Compliance Procedures is available to individual taxpayers, trusts, and estates who are non-willful — and have failed to disclose overseas accounts, assets, investments, and income to the US Government on their prior-year tax filings, FBAR Reporting Forms, and FATCA disclosures.  The Streamlined Procedures are one of the more popular offshore amnesty programs — due to the reduced Title 26 Miscellaneous Offshore Penalty and “streamlined” filing requirements for prior year noncompliance. Under the Streamlined program, the offshore penalties for unpaid taxes are forgiven, and the applicant is either subject to a 5% Title 26 Miscellaneous Offshore Penalty (Domestic Streamlined) or a penalty waiver (Foreign Streamlined). With the Internal Revenue Service taking an aggressive approach to foreign accounts compliance and unreported foreign income, compliance is crucial to avoid Offshore Penalties — and the Streamlined Filing Compliance Procedures can be an effective approach for Taxpayers Worldwide. Our Board-Certified Tax Specialist Tax and Legal Team explains how the IRS Streamlined Procedures work:

Purpose of the Streamlined Filing Compliance Procedures

The overall goal of the IRS streamlined filing compliance procedures is to get into IRS compliance — without breaking the bank. In recent years, the IRS has become much more aggressive in enforcing FBAR and offshore penalties. By entering the program, you can either leverage a smaller penalty now, against a potentially larger penalty later  — or possibly avoid any penalty. By proactively submitting a Streamlined Domestic submission, you voluntarily pay a “5% Streamlined Penalty” up-front, to avoid a potentially much larger penalty in the future.

Domestic vs Foreign

The Streamlined Filing Compliance Procedures can be broken down further into streamlined for U.S. residents (Domestic) and for non-U.S. residents (Foreign). Golding & Golding specializes exclusively in IRS offshore disclosure. We have summarized the two different programs for you:

Which Offshore Assets & Accounts Can I Report?

By using the Streamlined Filing Compliance Procedures, an applicant can file either a Form 14654 or 14653, and resolve issues involving (but not limited to):

      • Foreign Accounts, Assets & Investments

      • Foreign Income

      • Foreign Earned Income Exclusion

      • Foreign Tax Credit

      • FIRPTA

      • FATCA

      • FBAR

      • 5471

      • 5472

      • 8938

      • 3520-A

      • 3520

      • 8865

What is Streamlined Filing Compliance “Non-Willfulness”

In order to be eligible for the streamlined filing compliance procedures, a person must be non-willful.

Were You Non-Willful?

Generally, if a person was unaware that there was a foreign account, foreign income, or foreign asset reporting requirement, the applicant may qualify as non-willful.

Unfortunately, there is no bright-line test, and a more complex “totality of the circumstances” analysis is required.

Non-Willful vs. Lower Standards of Willfulness 

Willfulness does not mean intent.

There can be “lower” forms of willfulness, which do not require willfulness or intent — these additional willful standards are referred to as:

Even if a person was only non-willful for a small amount of time, or was willful but only had relatively small amounts of unreported income they do not qualify.

Learn what happens if you are willful and try to enter Streamlined Filing Compliance Procedures.

Non-Willfulness is Required for Streamlined Filing Compliance Procedures

The main eligibility criteria for the Streamlined Filing Compliance Procedures is to qualify as non-willful.

As provided by the IRS:

          • The modified streamlined filing compliance procedures are designed only for individual taxpayers, including 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.

          • Descriptions of the specific eligibility requirements for the streamlined procedures for both non-U.S. residents (the “Streamlined Foreign Offshore Procedures”) and U.S. residents (“Streamlined Domestic Offshore Procedures”) are set forth below.

Taxpayers must certify non-willful conduct

          • 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.

          • Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

IRS has initiated a civil examination

          • If the IRS has initiated a civil examination of 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 under examination may consult with their agent. Similarly, a taxpayer under criminal investigation by IRS Criminal Investigation is also ineligible to use the streamlined procedures.

Taxpayers eligible to use streamlined procedures 

          • Taxpayers eligible to use the streamlined procedures who have previously filed delinquent or amended returns in an attempt to address U.S. tax and information reporting obligations with respect to foreign financial assets (so-called “quiet disclosures” made outside of the Offshore Voluntary Disclosure Program (OVDP) or its predecessor programs) may still use the streamlined procedures by following the instructions set forth below.

          • However, any penalty assessments previously made with respect to those filing will not be abated. 

Taxpayers 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).

          • For individuals who are not eligible for an SSN or ITIN, your tax return will not be processed under the streamlined procedures.

          • However, for taxpayers who are ineligible for an SSN but do not have an ITIN, a submission may be made under the streamlined procedures if accompanied by a complete ITIN application. Additional information on getting an ITIN is available.  

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.

          • Consequently, receipt of the returns will not be acknowledged by the IRS and the streamlined filing process will not culminate in the signing of a closing agreement with 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.

          • Thus, returns submitted under the streamlined procedures may be subject to IRS examination, additional civil penalties, and even criminal liability, if appropriate.

          • Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns was due to willful conduct and who therefore seek assurances that they will not be subject to criminal liability and/or substantial monetary penalties should consider participating in the Offshore Voluntary Disclosure Program and should consult with their tax professional or legal advisers.

          • 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. “

Increased Enforcement of IRS Offshore Penalties

Here is a brief list of the potential penalties you can get hit with by the IRS:

Streamlined Filing Compliance – A Few Recent Updates

Over the past year, the IRS has updated the Streamlined Filing Compliance Procedures (SFCP). The IRS has issued formalized updates, insomuch as the IRS has provided the following informal updates that you should be aware of:

      • There is not a separate Streamlined Program for Cryptocurrency.

      • The IRS will end the Streamlined Program “sooner as opposed to later.”

      • The IRS is increasing the number of Streamlined Disclosure audits.

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 that 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.