Can the IRS Reject a Taxpayer’s Streamlined Filing Submission?

Does IRS Deny or Reject Streamlined Submissions

Can IRS Reject Streamlined Filing Submissions

When it comes to the Internal Revenue Service and offshore disclosure, many U.S. taxpayers can qualify to safely get into international tax and reporting compliance for previously undisclosed foreign accounts, assets, investments, and income – and regain their peace of mind — by entering into one of the IRS approved offshore disclosure programs (Streamlined Procedures, Delinquency Procedures, etc.)  Most taxpayers who submit to these offshore disclosure programs are successful. But, sometimes taxpayers contact us to let us know that they previously submitted to an offshore disclosure program — either on their own (or with inexperienced counsel/CPA) — and their submission/disclosure was denied and/or ultimately rejected by the IRS. For the past several years, we have written articles on all aspects of streamlined submissions and offshore disclosure in general, including why the IRS denies an offshore disclosure submission. And, out of all the different offshore disclosure programs, the streamlined procedures are the most common. While it is not common for a streamlined submission to get rejected or a VDP to get denied, sometimes it can happen. In general, as long as the taxpayer is non-willful and takes the time to put together a diligent and accurate submission, there is a high likelihood that the submission will be accepted and the taxpayer will receive a confirmation from the IRS that their package was received and accepted. For taxpayers who may have submitted an offshore disclosure but their submission was denied, here are five things to know about what to do when your submission has been rejected.

Aggressive Certifications are Not Necessary

Right off the bat, taxpayers must be aware that the streamlined certification is not the time to get aggressive with the Internal Revenue Service. The purpose of the certification is for the taxpayer to provide a narrative sufficient to convince the IRS agent reviewing the submission form that the taxpayer was non-willful. There is no need to take an aggressive position with the IRS as to why the taxpayer thinks the forms are stupid and intrusive. Noting, it is absolutely okay to feel that the IRS’s requirements are completely unfair and that the U.S. government’s compliance initiatives (requiring taxpayer transparency for accounts in a foreign country that have nothing to do with the U.S. government) are overburdensome. However, for taxpayers seeking to apply for the streamlined procedures program, it does not help them to take an aggressive stance in their certification statement.

Willfulness, But Sorry

To qualify for the streamlined procedures, the taxpayer must be non-willful. While there is no bright-line test to determine whether or not a taxpayer is willful or non-willful there are various factors the taxpayer can consider, and the Internal Revenue Manual is a good place to start. The taxpayer should take a totality of the circumstance approach to assess why they did not file the forms — and what facts and circumstances would show that they were non-willful and integrate this into their certification statement. Some taxpayers may have been willful when they were non-compliant, but they are now sorry and wish that they had not taken that route in the past. If a taxpayer was willful when they failed to report the foreign accounts or income, then acknowledging willfulness in the certification is a surefire way to get the certification rejected.

In other words, the taxpayers have to show in their certification statement that they were non-willful to make it through the streamlined program.

Willful, But Not Sorry (aka Fraud)

In recent years, the Internal Revenue Service has significantly increased enforcement of offshore disclosure and compliance. For some taxpayers, they know that they were willful but they submit to the streamlined procedures anyway thinking that the IRS will never find them. In reality, there are probably many taxpayers who were willful and still submitted to the streamlined procedures without getting caught by the IRS. But, if the IRS does determine that a taxpayer was willful and submitted to the streamlined procedures the U.S. Government may see that as a form of fraud and go after the taxpayer for significant civil penalties and even criminal penalties as happened in the cases of Rahman and Gyetvay.

Taxpayer Was Already Penalized for the Same Foreign Assets

The streamlined procedures are not an opportunity to erase a previously issued penalty. In other words, if a taxpayer has already received a CP15 notice for an international information reporting penalty, the IRS will not accept a streamlined submission to reduce that penalty. The taxpayer must get their streamlined submission into the IRS before they are penalized. Noting, that if the taxpayer did submit a quiet disclosure unintentionally in the past they may still be eligible to get into compliance using the streamlined procedures if they have not yet been penalized. Taxpayers who previously submitted quiet disclosures should be careful, because that may tip them over into the willfulness category if it was not unintentional so any taxpayer who made a quiet disclosure before but is seeking to enter the streamlined procedures now should be sure to speak with a Board-Certified Tax Law Specialist before going forward.

The Taxpayer Did Not Pay the Streamlined Penalty

Some taxpayers will receive a notice from the IRS that they were accepted into the program but that presumes that they paid any 5% penalty that they were required to pay. If the taxpayer ultimately does not pay the penalty, then they will be rejected from the streamlined procedures. Sometimes taxpayers may leave the country, or otherwise fall off the map and think the IRS will not find them. The IRS likes their money and at whatever time they determine that the taxpayer who submitted to the streamlined procedures did not pay the penalty is the time that they will reject or deny the streamlined procedures — and then issue significantly higher fines and penalties.

Current Year vs Prior Year Non-Compliance

Getting into compliance requires the coordination of several moving parts working simultaneously. 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. 

This resource may help taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

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.