An Amnesty Tax Guide for Non-Willful Expat or Foreign Taxpayers

An Amnesty Tax Guide for Non-Willful Expat or Foreign Taxpayers

An Offshore Amnesty Tax Guide for Non-Willful Taxpayers

While there are many different types of international tax amnesty programs for U.S. taxpayers who are out of compliance with foreign account, asset, investment, and income reporting — the streamlined offshore procedures are the most common program available. Technically, the streamlined offshore procedures are referred to as the Streamlined Filing Compliance Procedures and there are two versions of the program: Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures. The Streamlined Foreign Offshore Procedures are primarily for expats and taxpayers who do not meet the Substantial Presence Test but may have met it in prior years — and thus were required to file tax returns and report their foreign accounts and assets. We provided a brief introduction on how to qualify for the international version of the streamlined procedures for taxpayers who qualify as foreign residents and common issues when filing.

*This is an update to our prior 2021 Streamlined Offshore Tax Filing Guide guide.

Taxpayers MUST be Non-Willful

To qualify for either streamlined program, the taxpayer must be non-willful. Unfortunately, the IRS does not provide a bright-line test for taxpayers to determine whether they are non-willful or not. Rather, taxpayers must perform their own ‘totality of the circumstance’ analysis to determine whether based on the totality of the facts and circumstances they believe they meet the non-willfulness requirement.

Foreign Resident

Presuming that the taxpayer qualifies as non-willful, in order to qualify for the expat version of the program (which includes a full offshore penalty waiver), the taxpayer must qualify as a foreign resident. This portion of the requirement is crucial, and the IRS is very strict with its test to determine whether the taxpayer qualifies as a foreign resident. There are typically two tests, depending on whether the taxpayer is a U.S. Citizen/Lawful Permanent or a non—permanent resident who meets the Substantial Presence Test (SPT).

330-Days vs SPT

If a taxpayer is considered to be a U.S. citizen or Lawful Permanent Resident, then they must meet the 330-day test, which means they resided outside of the United States in any one of the past three tax years that have already passed for at least 330 days. If they do not meet this portion of the requirement, then they will not qualify as a foreign resident. Alternatively, if the taxpayer is not a lawful permanent resident or U.S. citizen — they can still qualify for the foreign streamlined procedures if they can show that they did not meet the Substantial Presence Test in at least one of the past three tax years. The most important part for either one of these tests is that they do not have to meet the requirement every year, but rather just in any one of the past three years.

Taxpayers Can File Original Tax Returns

One great benefit of the international version of the Streamlined Procedures is that taxpayers can file original tax returns with their submission. With the Streamlined Domestic Offshore Procedures, Taxpayers can only submit amended and not original tax returns.

No Confirmation from the IRS

Finally, it is important that taxpayers using the international version of the Streamlined Program take note that the IRS does not send any confirmation when the application is approved. Presumably, this is because taxpayers get away without having to pay any Title 26 penalties for their missed reporting and thus there is really nothing for the IRS to confirm. Sometimes, taxpayers may receive a confirmation that their tax returns were filed, but that is more of a general confirmation and not confirmation that they have been approved for the Streamlined Procedures.

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 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.