Streamlined Filing Compliance Procedures

Streamlined Filing Compliance Procedures

Streamlined Filing Compliance Procedures

Streamlined Filing Compliance Procedures: The purpose of the streamlined procedures is to allow taxpayers to file delinquent tax returns or amended previously incorrect tax returns and report delinquent FBARs, FATCA and other offshore tax forms. Generally, U.S. taxpayers are required to disclose their worldwide income and report their foreign accounts, assets, investments, trusts, real estate and other assets to the IRS each year. If the taxpayer has not filed these documents in prior years, and qualifies as non-willful, they may be eligible for filing under the streamlined filing compliance procedures.

The streamlined procedures are used to file (or amend) past tax returns, along with delinquent FBARs and other international information reporting forms.

Under the streamlined program, the offshore penalties are reduced or avoided depending on which program the taxpayer qualifies for. In general, the streamline procedures are considered one of the more generous of the IRS offshore amnesty program.

Our international tax lawyer specialist team will summarize the basics of the streamlined filing compliance rules below:

What is the Purpose of the Streamlined Procedures?

The purpose of the streamlined procedures is to bring noncompliant taxpayers into compliance with Internal Revenue Service.

The streamlined procedures allow taxpayers to file delinquent tax returns and/or amended returns — along with a myriad of international information reporting reforms that maybe required, in one fell swoop. 

Some of the more common international reporting forms include:

  • FBAR
  • FATCA
  • Form 3520
  • Form 3520-A
  • Form 5471
  • Form 5472
  • Form 8621
  • Form 8938

Presuming that the taxpayer makes a full disclosure, they will be able to bring themselves safely into offshore compliance with minimal penalties and a minimal amount of headaches as compared to the prior OVDP (closed in September 2018) and/or the current voluntary disclosure program.

Who is Eligible for the Streamlined Filing Compliance Procedures?

In order successfully complete an IRS streamlined disclosure there are several requirements that the taxpayer must meet, but the most important is that the taxpayer was non-willful.

There is no bright line test to determine willful vs non-willful; it boils down to a totality of the circumstance analysis, which differs from one taxpayer to the next.

As provided by the IRS:

  • “The modified streamlined filing compliance procedures are designed only for individual taxpayers, including estates of individual taxpayers. The streamlined procedures are available to both U.S. individual taxpayers residing outside the United States and U.S. individual taxpayers residing in the United States. Descriptions of the specific eligibility requirements for the streamlined procedures for both non-U.S. residents (the “Streamlined Foreign Offshore Procedures”) and U.S. residents (“Streamlined Domestic Offshore Procedures”) are set forth below. 
  • Taxpayers must certify that conduct was not willful. Taxpayers using either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures, will be required to certify, in accordance with the specific instructions set forth below, that the failure to report all income, pay all tax and submit all required information returns, including FBARs (FinCEN Form 114, previously Form TD F 90-22,1) was due to non-willful conduct. Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law 
  • IRS has initiated a civil examination of taxpayer’s returns for any taxable year. If the IRS has initiated a civil examination of taxpayer’s returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the streamlined procedures. Taxpayers under examination may consult with their agent. Similarly, a taxpayer under criminal investigation by IRS Criminal Investigation is also ineligible to use the streamlined procedures.
  • Taxpayers eligible to use streamlined procedures who have previously filed delinquent or amended returns must pay previous penalty assessments. Taxpayers eligible to use the streamlined procedures who have previously filed delinquent or amended returns in an attempt to address U.S. tax and information reporting obligations with respect to foreign financial assets (so-called “quiet disclosures” made outside of the Offshore Voluntary Disclosure Program (OVDP) or its predecessor programs) may still use the streamlined procedures by following the instructions set forth below. However, any penalty assessments previously made with respect to those filing will not be abated.  
  • Taxpayers who want to participate in the streamlined procedures need a valid Taxpayer Identification Number.All returns submitted under the streamlined procedures must have a valid Taxpayer Identification Number. For U.S. citizens, resident aliens, and certain other individuals, the proper TIN is a valid Social Security Number (SSN). For individuals who are not eligible for an SSN or ITIN, your tax return will not be processed under the streamlined procedures. However, for taxpayers who are ineligible for an SSN but do not have an ITIN, a submission may be made under the streamlined procedures if accompanied by a complete ITIN application. Additional information on getting an ITIN is available.”

Is there an IRS Criminal for the Streamlined Procedures?

In general, when taxpayers have unreported income, accounts, assets, or investments and may be facing an IRS penalty — the penalty is civil in nature.  In other words, while non-willful conduct may result in monetary fines or penalties — there is no jail or confinement.

If the taxpayer believes they were willful in failing to file taxes or report foreign accounts, then they do not qualify for the streamline program.

Instead, the taxpayer will submit to the updated version of the voluntary disclosure program, otherwise known as VDP.

*It is very important that taxpayers speak first with an experienced offshore tax attorney specialist before making any formal representation to the IRS regarding willful vs non-willful.

General Treatment For Taxpayers Under IRS Streamlined Procedures

In general, when the submission is handled properly, the taxpayer will pay the taxes due, penalties and interest — and will generally be done with the process.

Depending on how complicated the submission is — for example if a person has foreign tax credits or PFIC — it may lead to an informal examination or formal audit of the taxpayer.

As provided by the IRS:

  • “Tax returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will be processed like any other return submitted to the IRS. Consequently, receipt of the returns will not be acknowledged by the IRS and the streamlined filing process will not culminate in the signing of a closing agreement with the IRS.  
  • Returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will not be subject to IRS audit automatically, but they may be selected for audit under the existing audit selection processes applicable to any U. S. tax return and may also be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors, and other sources. Thus, returns submitted under the streamlined procedures may be subject to IRS examination, additional civil penalties, and even criminal liability, if appropriate. 
  • Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns was due to willful conduct and who therefore seek assurances that they will not be subject to criminal liability and/or substantial monetary penalties should consider participating in the Offshore Voluntary Disclosure Program and should consult with their tax professional or legal advisers.” 

After a taxpayer has completed the streamlined filing compliance procedures, they will be expected to comply with U.S. law for all future years and file returns according to regular filing procedures.   In fact, the IRS has a separate campaign to ensure enforcement is complete.

  • Practice Area: Withholding & International Individual Compliance
  • Lead Executive: Deborah Palacheck, Director of Withholding & International Individual Compliance
  • Campaign Point of Contact: Sharon Taylor
  • U.S. persons are subject to tax on worldwide income. This campaign addresses tax noncompliance related to former Offshore Voluntary Disclosure Program (OVDP) taxpayers’ failure to remain compliant with their foreign income and asset reporting requirements. The IRS will address tax noncompliance through soft letters and examinations.”

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