Streamlined Foreign Offshore Procedure for US Expats
U.S. Taxpayers Residing outside the United States
The following streamlined procedures are referred to as the Streamlined Foreign Offshore procedures.
Eligibility for the Streamlined Foreign Offshore Procedures
If you an US citizen or green card holder living abroad and have years of unfiled tax returns, you are not alone. The IRS has recognized that many taxpayers overseas have not timely filed their U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), and is offering a special procedure to get delinquent taxpayers back on track. The IRS presents an opportunity to come into compliance in a manner that avoids possible IRS enforcement action and the significant penalties that accompany it
On July 1, 2014 the IRS expanded and modified the Streamlined Filing Compliance Procedures first implemented on September 1, 2012 to US individual taxpayers residing outside the United States.
The IRS has a FAQ page regarding for each procedure. Please visit:
Am I eligible for the Streamlined Foreign Offshore Procedure?
To be eligible for the Streamlined Foreign Offshore Procedures you must:
1. Be an individual US taxpayer or
2. An estate of a US taxpayer and
3. US citizens must have a valid Social Security Number or
4. Those not eligible for a Social Security Number must have an Individual Taxpayer Identification Number (ITIN) or apply for one and
5. Do not have a US abode and
In one or more of the most recent three years that a US tax return was due (or properly filed extension) has passed
6. Failed to report the income from a foreign financial asset and pay tax as required by U.S. law, and failed to file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) with respect to a foreign financial account, and such failures resulted from non-willful conduct and
For information on the meaning of foreign financial asset, see the instructions for FinCEN Forms, which may be found at FinCen and the instructions for Form 8938, which may be found at Instructions for Form 8938.
7. Meet the applicable non-residency requirement (was physically outside the United States for at least 330 full days)
What are the steps involved to participate in the Streamlined Foreign Offshore Procedure?
The steps involved to use the streamlined procedure are:
1. For each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed:
· if a U.S. tax return has not been filed previously, submit a complete and accurate delinquent tax return using Form 1040, U.S. Individual Income Tax Return, together with the required information returns (e.g., Forms 3520, 5471, and 8938) even if these information returns would normally be filed separately from the Form 1040 had the taxpayer filed on time, or
· if a U.S. tax return has been filed previously, submit a complete and accurate amended tax return using Form 1040X, Amended U.S. Individual Income Tax Return, together with the required information returns (e.g., Forms 3520, 5471, and 8938) even if these information returns would normally be filed separately from the Form 1040 had the taxpayer filed a complete and accurate original return.
2. Include at the top of the first page of each delinquent or amended tax return and at the top of each information return "Streamlined Foreign Offshore" written in red to indicate that the returns are being submitted under these procedures. This is critical to ensure that your returns are processed through these special procedures.
3. Complete and sign a statement on the Certification by U.S. Person Residing Outside of the U.S. certifying (1) that you are eligible for the Streamlined Foreign Offshore Procedures; (2) that all required FBARs have now been filed (see instruction 8 below); and (3) that the failure to file tax returns, report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct. You must submit the original signed statement and you must attach copies of the statement to each tax return and information return being submitted through these procedures. You should not attach copies of the statement to FBARs. Failure to submit this statement, or submission of an incomplete or otherwise deficient statement, will result in returns being processed in the normal course without the benefit of the favorable terms of these procedures.
4. Submit payment of all tax due as reflected on the tax returns and all applicable statutory interest with respect to each of the late payment amounts. Your taxpayer identification number must be included on your check. You may receive a balance due notice or a refund if the tax or interest is not calculated correctly.
5. If you are not eligible to have a Social Security Number and do not already have an ITIN, submit an application for an ITIN along with the required tax returns, information returns, and other documents filed under these streamlined procedures. See the ITIN page on www.irs.gov for more information.
6. If you seek relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by an applicable treaty, submit:
· a statement requesting an extension of time to make an election to defer income tax and identifying the applicable treaty provision;
· a dated statement signed by you under penalties of perjury describing:
o the events that led to the failure to make the election,
o the events that led to the discovery of the failure, and
o if you relied on a professional advisor, the nature of the advisor’s engagement and responsibilities; and
· for relevant Canadian plans, a Form 8891 for each tax year and each plan and a description of the type of plan covered by the submission.
7. The documents listed8. above, together with the payments described above, must be sent in paper form (electronic submissions will not be accepted) to:
Internal Revenue Service
3651 South I-H 35
Stop 6063 AUSC
Attn: Streamlined Foreign Offshore
Austin, TX 78741
This address may only be used for returns filed under these procedures. For all future filings, you must file according to regular filing procedures.
8. For each of the most recent 6 years for which the FBAR due date has passed, file delinquent FBARs according to the FBAR instructions and include a statement explaining that the FBARs are being filed as part of the Streamlined Filing Compliance Procedures. You are required to file these delinquent FBARs electronically at FinCen. On the cover page of the electronic form, select “Other” as the reason for filing late. An explanation box will appear. In the explanation box, enter “Streamlined Filing Compliance Procedures.”
Description of Scope and Effect of Procedures
U.S. taxpayers (U.S. citizens, lawful permanent residents, and those meeting the substantial presence test of IRC section 7701(b)(3)) eligible to use the Streamlined Foreign Offshore Procedures must (1) for each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed, file delinquent or amended tax returns, together with all required information returns (e.g., Forms 3520, 5471, and 8938) and (2) for each of the most recent 6 years for which the FBAR due date has passed, file any delinquent FBARs (FinCEN Form 114, previously Form TD F 90-22.1). The full amount of the tax and interest due in connection with these filings must be remitted with the delinquent or amended returns.
A taxpayer who is eligible to use these Streamlined Foreign Offshore Procedures and who complies with all of the instructions outlined below will not be subject to failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties, or FBAR penalties. Even if returns properly filed under these procedures are subsequently selected for audit under existing audit selection processes, the taxpayer will not be subject to failure-to-file and failure-to-pay penalties or accuracy-related penalties with respect to amounts reported on those returns, or to information return penalties or FBAR penalties, unless the examination results in a determination that the original tax noncompliance was fraudulent and/or that the FBAR violation was willful. Any previously assessed penalties with respect to those years, however, will not be abated. Further, as with any U.S. tax return filed in the normal course, if the IRS determines an additional tax deficiency for a return submitted under these procedures, the IRS may assert applicable additions to tax and penalties relating to that additional deficiency.
For returns filed under these procedures, retroactive relief will be provided for failure to timely elect income deferral on certain retirement and savings plans where deferral is permitted by the applicable treaty. The proper deferral elections with respect to such plans must be made with the submission. See the instructions below for the information required to be submitted to make such elections.
Transition rules for taxpayers who made submissions under the 2012 Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers: The risk assessment process associated with the 2012 Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers has been eliminated for all streamlined filers. A taxpayer who has initiated participation in the 2012 Streamlined Filing Compliance Procedures prior to July 1, 2014, and has not already been notified of a high or low risk determination will not receive correspondence related to their risk determination and the returns will be processed without regard to that risk assessment.
What if I don’t meet the criteria for the Streamlined Filing Compliance Procedure?
If you do not meet the criteria for the Streamlined Filing Compliance Procedure, an alternative Offshore Voluntary Disclosure Program announced on January 9, 2012 and updated on July 1, 2014 may be a more appropriate option for taxpayers with higher compliance risk, depending on the facts and circumstances. Please contact us for other options to become compliant with the IRS.
Disclaimer of Liability: This publication is intended to provide general information to our clients, friends and readers. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.