- 1 Streamlined Offshore Filing Compliance Summary
- 2 Willfulness Makes Taxpayers Ineligible for Streamlined Procedures
- 3 Do Not Intentionally Make an Incomplete Disclosure
- 4 Organize the Streamlined Procedure Foreign Accounts by Category
- 5 Determine and Categorize Unreported Foreign Income
- 6 Assess Whether Foreign Taxes have been Paid or Withheld
- 7 Does the Taxpayer Qualify for the Foreign Earned Income Exclusion?
- 8 Are Some Assets Exempted from Reporting for the Streamlined Procedures?
- 9 Prepare the Streamlined Procedure Amended Returns & FBAR
- 10 Write and Re-Write the Streamlined Procedures Certification Statement (and then Again)
- 11 Streamlined Procedure Submissions Are Time-Intensive
- 12 International Tax Lawyers Represent Clients Worldwide
Streamlined Offshore Filing Compliance Summary
Streamlined Procedure International Tax Filing Guide: When International Tax Attorneys refer to the Streamlined Procedures, they are referring to the Streamlined Filing Compliance Procedures – which can be broken down even further into the Streamline Domestic Offshore Procedures (SDOP) and Streamlined Foreign Offshore Procedures (SFOP). Oftentimes, IRS streamlined offshore submissions can be much more complicated than meets the eye. Here is a quick summary of the IRS Streamline Procedures for US Persons who may be considering doing it on their own — or just wanted a general idea about how the Streamlined Procedures work.
Willfulness Makes Taxpayers Ineligible for Streamlined Procedures
Taxpayers must be non-willful — and there is no bright-line test to determine willfulness versus non-willfulness. Rather, Taxpayers must look at the ‘totality of the circumstance’ to determine whether or not they are willful or non-willful. If a Taxpayer is willful, then they do not qualify for the Streamline Procedures — even if the amount of unreported income is small.
Do Not Intentionally Make an Incomplete Disclosure
Sometimes, Taxpayers only want to report the foreign accounts, assets, and investments they think the IRS may be able to find. But, in order to enter the Streamlined Program — there must be full disclosure of foreign money. Of course, if the Taxpayer has an old dormant zero balance account they might have forgotten about — that is probably not going to negate the application — but only (intentionally) making a partial disclosure is a bad strategy.
Organize the Streamlined Procedure Foreign Accounts by Category
Taxpayers should review the different types of accounts they have and categorize them accordingly — since different accounts have different reporting requirements. Some accounts may be reported on the FBAR, while some other accounts must be reported on the FBAR and Form 8938 — and others may still require additional reporting, such as Form 8621, Form 5471, Form 8865, etc.
Determine and Categorize Unreported Foreign Income
Taxpayers should determine how much unreported income they have, so they can get an idea of how much tax liability they may have. Since different types of income may be taxed at different rates — it is important to determine a rough estimate of the tax liability.
Assess Whether Foreign Taxes have been Paid or Withheld
When a Taxpayer has already paid foreign taxes abroad, they may qualify for a foreign tax credit to reduce or eliminate any US tax liability as part of their Streamlined Procedures submission.
Does the Taxpayer Qualify for the Foreign Earned Income Exclusion?
If the Taxpayer had worked overseas and qualifies under either the Bona-Fide Residence Test or the Physical Presence Test — they may qualify in excluding a significant amount of earnings that result in US taxes. (The income is still reported on the tax return, but it is excluded using Form 2555.)
Are Some Assets Exempted from Reporting for the Streamlined Procedures?
Yes, not all foreign assets and accounts are subject to a penalty. Therefore, it is important that the Taxpayer remove any foreign assets or accounts that should not be calculated as part of the SDOP penalty — there are no offshore penalties under SFOP.
Prepare the Streamlined Procedure Amended Returns & FBAR
For many Taxpayers who are unfamiliar with tax preparation, this is the part of the streamlined submission that overwhelms them — and causes them to throw in the towel. Therefore, the Taxpayer should do a dry-run of their tax returns to determine whether they think the product is something they want to pursue on their own or not.
Write and Re-Write the Streamlined Procedures Certification Statement (and then Again)
The Streamlined Certification statement is crucial. It is the most important aspect of a Streamlined Procedure submission and Taxpayers should be very careful in how they prepare the letter. There are many pitfalls and concerns to be aware of and the Taxpayer has to be very careful not to inadvertently acknowledge willfulness — either directly or indirectly — as part of the non-willful certification statement. The statement is signed under penalty of perjury.
Streamlined Procedure Submissions Are Time-Intensive
The Streamlined Procedures are a great way for non-willful Taxpayers to safely get into compliance. The procedures are much more complicated than meets the eye, and oftentimes, it will benefit the Taxpayer to have full representation with a Board-Certified Tax Specialist team.
International Tax Lawyers Represent Clients Worldwide
Our International Tax Lawyer team specializes exclusively in international tax, and specifically IRS offshore disclosure and the Streamlined Procedures.
Contact our firm for assistance.