- 1 Are You Considering the IRS Streamlined Program?
- 2 Non-Willful vs. Willful
- 3 No De Minimis Rule
- 4 VDP vs Streamlined
- 5 First Try Delinquency or Reasonable Cause and Then Streamlined?
- 6 Timing is Important
- 7 Audits Are on the Rise
- 8 It Can Be a Long and Winding Road Ahead
- 9 Streamlined May Be on the Chopping Block
- 10 Meet our International Tax Law Specialist Team
Are You Considering the IRS Streamlined Program?
Streamlined Domestic & Foreign Offshore Procedures: For non-willful taxpayers who have not properly reported their offshore accounts, assets, investments, and income — the Streamlined Program is a great opportunity to get into compliance. Over the years, the IRS indicated that this program was a Band-Aid – developed to (temporarily) assist taxpayers with getting into FBAR & FATCA compliance. Unlike many of the other amnesty programs, the Streamlined Procedures have not changed much since they were introduced as a standalone program in 2014. For taxpayers who are considering getting into compliance with the Streamlined Program, it is important to note some of the common pitfalls… before making a submission.
Here are seven (7) important facts about making a Streamlined Program submission:
Non-Willful vs. Willful
There are two versions of the Streamlined Program: Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures. While there are many key distinctions between the two versions of the program, one absolute requirement for both programs is that the taxpayer is non-willful. Unfortunately, there is no bright line test to determine if a person is willful or non-willful. Compounding the difficulty is the fact that there are lower levels of willfulness (Reckless Disregard and Willful Blindness) that makes for a very large gray area.
No De Minimis Rule
If a person is willful, then they absolutely do not qualify for the Streamlined Program. If they enter the Streamlined Program and get caught, it could conceivably lead to a criminal investigation. In fact, a taxpayer recently attempted to enter the Streamlined Program when they were willful – and they ended up being indicted by the US government. Entering the Streamlined Program was not the only reason they were indicted, but it was the icing on the cake. Beware of attorneys still willing to take you Streamlined when you are willful. If a lawyer is willing to break the law to make money, then they probably don’t have the most honest billing practices either.
VDP vs Streamlined
In 2018, the IRS terminated the prior Offshore Voluntary Disclosure Program (OVDP) and then soon thereafter, extended the traditional Voluntary Disclosure Program to include both offshore and domestic undisclosed income. VDP is much different than the Streamlined Program, and it is important for taxpayers to understand how the different programs work before making a proactive submission to the IRS.
First Try Delinquency or Reasonable Cause and Then Streamlined?
When a taxpayer submits to the Streamlined Domestic version of the program (US residents with foreign accounts) – they pay a 5% penalty. In order to avoid the penalty, taxpayers may instead attempt to submit a Reasonable Cause or Delinquency Submission an an alternative to Streamlined if they have compelling factors. It is important to keep in mind that if a person submits to Reasonable Cause and then gets penalized – they cannot then go back and submit to the Streamlined Program instead (taxpayers get only one bite at the apple).
Timing is Important
It is very important to understand the mechanics of the Streamlined Program relative to the taxpayer’s noncompliance along with the status of their current year tax return. If the timing is done incorrectly, it could be considered a quiet disclosure — which can lead to much more serious tax and penalty complications.
Audits Are on the Rise
Over the past few years, the Internal Revenue Service has significantly increased the number of audits for international-related matters. While a person may not be directly audited on the willful vs non-willful issue, there are many ancillary issues that the IRS can still go after such as the penalty computation, foreign tax credits, and FBAR/8938 compliance — and it may be several years after the initial submission.
It Can Be a Long and Winding Road Ahead
The Streamlined submission process does not end once the application has been submitted. The process can literally go on for years –especially in light of COVID. Representation should be flat-fee and full-service for tax preparation, legal representation, and post-submission representation.
Streamlined May Be on the Chopping Block
While the Streamlined Procedures are a great opportunity for non-willful taxpayers to safely get into offshore compliance with the IRS, the program will not last forever. When you are ready to get into compliance, you should be aware of various pitfalls that may impact the submission process — but also, consider acting quickly as the whispers of the program’s discontinuation has been getting even louder.
Meet our International Tax Law Specialist Team
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure and FBAR reporting compliance.
Contact our firm today for assistance.