- 1 Streamlined Domestic vs. Foreign Offshore Procedures
- 2 US vs Non-US Resident
- 3 Original Tax Returns vs Amended Tax Returns
- 4 5% Penalty vs Penalty Waiver
- 5 Confirmation of Submission vs Non-Confirmation Letter
- 6 Chance of Audit
- 7 Important Basics of the Streamlined Procedures
- 8 Our FBAR Lawyers Represent Clients Worldwide
Streamlined Domestic vs. Foreign Offshore Procedures
Streamlined Domestic or Foreign Offshore Procedures: With tax season in full swing, many US Taxpayers are coming to the realization that they did not properly report their foreign accounts, assets, investments, and income in prior years. Unfortunately for many taxpayers, this includes going in and out of various rabbit holes online — and trying to navigate the endless fear-mongering websites about what will actually happen to taxpayers who get caught with unreported foreign money (read: amnesty can normally resolve the issues with no problem).
The two most popular amnesty programs for taxpayers who are non-willful are the Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures. Both of these programs fall under the more general heading of the Streamlined Filing Compliance Procedures.
In order to assist taxpayers with a basic understanding of what they need in order to qualify for these programs, we have provided five (5) key facts to help:
US vs Non-US Resident
The names “Streamlined Domestic” and “Streamlined Foreign” are a bit misleading. Both of these programs refer to foreign accounts, assets, investments, and income, but the Streamlined Domestic refers to non-foreign residents while the Streamlined Foreign refers to taxpayers who qualify as foreign residents under the specific requirements of the foreign resident SFOP rule.*
*Just living overseas does not qualify someone as a foreign person for the Streamlined Foreign Offshore Procedures unless they meet the specific resident requirements.
Original Tax Returns vs Amended Tax Returns
When filing the Streamlined Domestic Offshore Procedures, the taxpayer cannot submit original tax returns. Rather, the taxpayer can amend previously filed tax returns to include unreported income and undisclosed accounts. Conversely, the Streamlined Foreign Program authorizes taxpayers to file original tax returns.
5% Penalty vs Penalty Waiver
When a person submits to the Streamlined Domestic Program, there is an automatic 5% penalty that is applied on certain (but not all) foreign assets, investments, and accounts. While not all undisclosed foreign accounts and assets are subject to the penalty, the 5% Title 26 Miscellaneous Offshore Penalty can not be waived or negotiated down further. If a person qualifies for the Streamlined Foreign Program — the 5% penalty is waived so that there are no offshore reporting penalties for the offshore noncompliance.
Confirmation of Submission vs Non-Confirmation Letter
One of the benefits of submitting to the Streamlined Domestic Program is that when the submission is complete, processed, and accepted by the IRS — the Internal Revenue Service will send a confirmation letter acknowledging that the application was processed and approved. At the outset of the program that penalty letter would arrive usually within 30-to-60 days of the date of the submission. Fast forward 7-years later and it can take upwards of 1-2 years — if not longer — to receive that letter.
It is important to note, that unlike an OVDP 906 “closing” letter that accompanies the completion and approval of a Voluntary Disclosure Submission — the Streamlined Disclosure acceptance letter is not a closing letter and the taxpayer can still be subject to audit.
With the Streamlined Foreign submission, there is typically no confirmation letter acknowledging the completed processing since there is no penalty for the IRS to acknowledge.
Chance of Audit
There is a higher likelihood for audit under the Streamlined Domestic Offshore Procedures than there is under the Streamlined Foreign version of the program, because under Streamlined Domestic Program, there is a 5% penalty and that penalty is calculated based on a percentage value of the accounts and assets. If the IRS believes the application is incomplete or that the calculations were not accurate, it could lead to an audit. There is no such penalty for the Streamlined Foreign program.
In addition, it is quite frankly just easier for the IRS to pursue an audit or examination for taxpayers located in the United States.
Important Basics of the Streamlined Procedures
The Streamlined Procedures are a great way for non-willful taxpayers to safely get into compliance for prior year unreported foreign accounts, assets, investments, and income. It is important to note that there are key differences between the two programs and it is important to have a solid grasp on the admission requirements before applying to the program, to avoid any unnecessary pitfalls along the way.
Our FBAR Lawyers Represent Clients Worldwide
Our FBAR Lawyer team specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm today for assistance.