- 1 Streamlined Compliance Procedures
- 2 Citizen or LPR vs. Resident Alien
- 3 Proper Tax Years in the Submission
- 4 Willful vs. Non-Willful
- 5 Moving Overseas and Waiting to Qualify for SFOP
- 6 Huge Delay in Submitting FBARs and a Completed Submission
- 7 FBAR vs. TD-F-90
- 8 Full Disclosure vs. Selective Disclosure
- 9 Certification Statement Length
- 10 Not Reportable vs. Not Penalized
- 11 Missed Accounts and Other Mistakes are Usually No Big Deal
- 12 About Our International Tax Law Firm
Streamlined Compliance Procedures
Chances are that if you are a US Person Taxpayer and out of compliance for not properly reporting foreign accounts, assets, investments, and income to the IRS, you may have learned about Streamlined Procedures. Technically, the program is referred to as the Streamlined Filing Compliance Procedures (SFCP) — which is then broken down further into the Streamlined Domestic Offshore Procedures (SDOP, US Resident with foreign money) and Streamlined Foreign Offshore Procedures (SFOP, Foreign Residents with foreign money). Unfortunately, there is a significant amount of misinformation online regarding how to submit to the program and what is required for compliance. In general, if you work with an experienced Board-Certified Tax Law Specialist, the process is relatively painless. Here are 10 important compliance tips when submitting to the Streamlined Procedures.
Citizen or LPR vs. Resident Alien
When a person wants to try to qualify for the Streamlined Foreign Offshore Procedures (and the Title 26 Miscellaneous Offshore Penalty Waiver), there are two sets of rules in order to determine whether a person qualifies as a foreign resident or not. There is one set of rules for US Citizens and Lawful Permanent Residents (days out of the US) and then a different set of rules for taxpayers who were considered non-permanent Resident Aliens at the time of filing (Substantial Presence Test).
Proper Tax Years in the Submission
There are specific rules as to which compliance years are included in the submission package. Generally, the submission is limited to three prior years, but it can get confusing for taxpayers when they are in the middle of a current-year filing requirement but the time to file in the current year has not yet passed. It is important to determine which years to submit, before making a streamlined submission.
Willful vs. Non-Willful
You will find gobbles of information online about willfulness versus non-willfulness. The most important takeaway is that there is no bright-line test. Taxpayers utilize a totality of the circumstances analysis to evaluate their facts, and if they determine that they are willful, then they do not qualify for the Streamlined Program.
Moving Overseas and Waiting to Qualify for SFOP
Oftentimes we get asked whether it is OK for a US resident to move overseas and wait to file the SFOP for a year or two, in order to meet the foreign residence requirement. The reason this strategy is not kosher is that by intentionally avoiding the filing requirement for 1+ years, the US government may determine that the taxpayer was willful, by intentionally waiting to file.
Huge Delay in Submitting FBARs and a Completed Submission
While FBARs are submitted electronically, the remainder of the package is generally submitted by paper to Austin. Sometimes, taxpayers or their representatives may have submitted the FBAR portion but they have not submitted the streamlined package for several months if not years after the FBARs were submitted. Taxpayers should be careful of this strategy because the IRS may deem the initial FBAR submission as a quiet disclosure if it is not followed by a streamlined submission.
FBAR vs. TD-F-90
Since about 2013, the FBAR is submitted electronically online using FinCEN Form 114. Some old tax software and tax professionals who are not up-to-date on the procedures still submit the information on a TD-F-90 Form, but that is insufficient for meeting the current FBAR requirements.
Full Disclosure vs. Selective Disclosure
Despite the fact that you may believe one of your foreign banks where your family has been banking for many many years will not report you, that does not mean you can simply avoid including those accounts with the submission. The IRS requires a full submission and if they learn later that you intentionally withheld information about one or more accounts, it could lead to the IRS deeming the submission as incomplete and fraudulent — removing you from the Streamlined Program.
Certification Statement Length
The certification statement should not be 20-pages. If you find that you or your counsel is making a submission that is 20-pages long, you should consider re-evaluating the submission for accuracy and conciseness.
Not Reportable vs. Not Penalized
There are certain assets that are not penalized under these procedures. For example, RRSP and RRIF accounts from Canada are not part of the penalty computation under the Streamlined Domestic Offshore Procedures. That does not mean the accounts are excluded from reporting on forms such as the FBAR or Form 8938; it just means it is not computed as part of the penalty.
Missed Accounts and Other Mistakes are Usually No Big Deal
If you find that your submission has a mistake, do not worry too much about it; it is usually relatively easy to resolve. The Internal Revenue Service has developed many procedures to assist you with getting into compliance even after you made mistakes on your Streamlined submission — mistakes will not usually remove you from the program.
About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, specifically IRS Offshore Compliance and Voluntary Disclosure.
Contact our firm today for assistance.