What Is The Purpose of The Streamlined Filing Compliance Procedures?
The IRS Streamlined Filing Compliance Procedures are intended to bring delinquent taxpayers back into annual compliance with their US tax reporting responsibilities by filing their delinquent returns for a certain number of tax years, reporting their worldwide income and disclosing their foreign assets, accounts and investments. By participating in the program, taxpayers benefit by receiving a full penalty waiver from the IRS, which exempts them from having to pay a number of different penalties for late filing of returns and late payments of taxes due.
Only individual taxpayers (including estates of individual taxpayers) can qualify to use the Streamlined Filing Compliance Procedures. Entities such as corporations and partnerships cannot qualify for the program.
Do the Streamlined Procedures Differ Depending on Whether the Taxpayer Is Living in the US or Abroad?
Yes – there are two types of IRS Streamlined Filing Compliance Procedures
- Streamlined Domestic Offshore Procedures (SDOP)
- Streamlined Foreign Offshore Procedures (SFOP)
The Streamlined Domestic Offshore Procedures are designated for US taxpayers residing within the US, and the Streamlined Foreign Offshore Procedures are intended for taxpayers living abroad. Both programs are, but the domestic program is for non-foreign residents, and the foreign program is for foreign residents.
Each of the two programs have their own set of requirements, but both require taxpayers to disclose their foreign income, assets, investments and accounts.
Do All Taxpayers Qualify for the Streamlined Procedures?
No – both the Streamlined Domestic Offshore Procedures and the Streamlined Foreign Offshore Procedures have a series of requirements that taxpayers must meet, in order to qualify for either program. The requirements are similar under both programs, with a few key differences.
Streamlined Domestic Offshore Procedures (SDOP) – For Taxpayers Residing in US:
- Timely-filed Returns for the Past Three Tax Years. Taxpayers must have timely filed US federal income tax returns for the prior three tax years, even if they did not report any non-US income, or failed to disclose any foreign assets, investments or accounts
- Non-Willful. Taxpayers non-compliance, in not reporting foreign-source income and not disclosing foreign assets, investments and accounts, must have been non-willful – that is, due to ignorance or misunderstanding, and not deliberate.
- Voluntary. Taxpayers must come forward and participate in the program voluntarily – i.e., before being contacted by the IRS.
Streamlined Foreign Offshore Procedures (SFOP) – For Taxpayers Residing Abroad:
- Non-resident. US taxpayers are required to maintain a presence abroad to use the Streamlined Foreign Offshore Procedures. This means either spending at least 330 days during one of the last three years in a foreign country and not maintaining a US abode, or being a bona-fide resident of another country.
- No Returns Filed for Past Three Tax Years. To qualify for the Streamlined Foreign Offshore Procedures, taxpayers living abroad must not have already filed US federal income tax returns for the three most recently completed tax years.
- Non-Willful. Same as under the Streamlined Domestic Offshore Procedures, taxpayers non-compliance, in not reporting foreign-source income and not disclosing foreign assets, investments and accounts, must have been non-willful – that is,due to ignorance or misunderstanding, and not deliberate.
- Voluntary. Same as under the Streamlined Domestic Offshore Procedures, taxpayers must come forward and participate in the program voluntarily – i.e., before being contacted by the IRS.
I Qualify for the Streamlined Foreign Offshore Procedures (SFOP) That Apply to Me, as an Expat Living Abroad. What Are the Specific Requirements for the SFOP?
If you qualify for Streamlined Foreign Offshore Procedures, you will need to:
- File US federal income tax returns for the prior three tax years
- File FBAR reports (FinCEN Form 114, Report of Foreign Bank and Financial Accounts) for the prior six tax years, as required. US taxpayers must file an FBAR if they have a total combined balance of over $10,000 in their foreign bank and other financial accounts at any time during a calendar year. No tax is due with an FBAR, but severe penalties may be applied if a taxpayer has an FBAR filing requirement and willfully does not file. The FBAR reports must include all necessary foreign account information for bank accounts, investment accounts, pension, and/or life insurance polices
- Make Non-Willful Certification on Form 14653,Certification by US Person Residing Outside of the United States for Streamlined Foreign Offshore Procedures. US taxpayers must certify that their failure to file previously was non-willful, by completing a statement of explanation on Form 14653 indicating why they had not timely filed their US federal tax returns and FBAR reports for prior tax years.
- Pay the tax and interest due for the prior three years. However, please note that often US expats are able to claim the Foreign Earned Income Exclusion and/or foreign tax credits to reduce or eliminate their back taxes due, and also interest calculated on the back taxes.
How Does the IRS Acknowledge or Confirm the Streamlined Filing I Submitted?
If you live in the US and come into compliance using the Streamlined Domestic Offshore Procedures, you should receive a confirmation letter from the IRS. However. If you live abroad and you submit a Streamlined filing using the Streamlined Foreign Offshore Procedures, the IRS does not typically send any confirmation letter, as there is no penalty for the IRS to confirm.
Could I Still Be Subject to an IRS Audit After Making a Streamlined Filing?
Yes – There is still a possibility that you could be subject to an IRS audit, following submission of a Streamlined filing under either set of Streamlined Procedures. But there is certainly no increased chance of an audit, because once you are in full compliance in disclosing your offshore income, assets, investments and accounts via either set of the Streamlined Procedures, little to no additional penalties could potentially be assessed against you.
Have any other questions about IRS Streamlined Filing Compliance Procedures? Contact Universal Tax Professionals today!
