Streamlined Filing Procedures

Even “streamlined procedures” are often lengthy and complex. The dual-licensed tax attorney-CPA’s at the law firm of Daniel Rosefelt & Associates, have significant experience in advising clients on the best course for resolving their undisclosed offshore accounts or unreported income and can help make sense of seemingly incomprehensible scenarios.

Who qualifies for Streamlined Filing Procedures?

Streamlined filing compliance procedures are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part. Certification should only be made after a thorough analysis of the statement by an experienced tax attorney in review of the relevant facts and law of your particular case. Beware that the IRS is reviewing Streamlined certifications and if it determines that the certification of non-willfulness is inappropriate, you could be exposed to significant risk of criminal tax prosecution. The streamlined procedures are designed to aid taxpayers in such situations where their behavior is clearly non-willful and can be resolved through the Streamlined Filing Procedures.

The Streamlined Filing Procedures first offered on September 1, 2012 have been expanded and modified to accommodate a broader group of U.S. taxpayers. Although the IRS recently ended the Offshore Voluntary Disclosure Program and introduced new Voluntary Disclosure Guidelines, the Streamlined Filing Compliance Procedures remain in place. The IRS cautions, however, that these procedures may be changed at any time.

General Eligibility for the Streamlined Procedures

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 within the United States.

Taxpayers using either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will be required to certify 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.

If the IRS has initiated a civil examination of a 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. Similarly, a taxpayer under criminal investigation by IRS Criminal Investigation is also ineligible to use the streamlined procedures.

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 the Voluntary Disclosure Program or its predecessor programs) may still use the streamlined procedures. However, any penalty assessments previously made with respect to those filings will not be abated.

Income tax 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. 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 what will be considered willful conduct and therefore seek assurances that they will not be subject to criminal liability and/or substantial monetary penalties should consider participating in the Voluntary Disclosure Program. Doing so is a complex process, and we advise you to consult with the experienced dual-licensed tax attorney-CPA’s at the law firm of Daniel Rosefelt & Associates, LLC, Attorney & CPA.

U.S. Taxpayers Residing Outside the United States

Eligibility for the Streamlined Foreign Offshore Procedures

In addition to meeting the general eligibility criteria described above, individual U.S. taxpayers, or estates of individual U.S. taxpayers, seeking to use the Streamlined Foreign Offshore Procedures described in this section must:

Meet one of the IRS non-residency requirements;
Have failed to report the income from a foreign financial asset and failed to pay tax as required by U.S. law, and may have failed to file an FBAR with respect to a foreign financial account; and
Have resulted from 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.

U.S. taxpayers eligible to use the Streamlined Foreign Offshore Procedures must:

For each of the most recent 3 years for which the U.S. tax return due date (or extended due date) has passed, file delinquent or amended tax returns, together with all required information returns; and
For each of the most recent 6 years for which the FBAR due date has passed, file any delinquent FBARs. 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 the IRS requirements 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 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 exists 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 may be provided for failure to 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.

U.S. Taxpayers Residing in the United States

In addition to having to meet the general eligibility criteria described above, individual U.S. taxpayers, or estates of individual U.S. taxpayers, seeking to use the Streamlined Domestic Offshore Procedures described in this section must:

Fail to meet the applicable non-residency requirement;
Have previously filed a U.S. tax return (if required) 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;
Have failed to report gross income from a foreign financial asset and pay tax as required by U.S. law, and may have failed to file an FBAR or one or more international information returns with respect to the foreign financial asset; and
Certify that such failures resulted from 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.

U.S. taxpayers eligible to use the Streamlined Domestic Offshore Procedures must:

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 (the “covered tax return period”), file amended tax returns, together with all required information returns;
For each of the most recent 6 years for which the FBAR due date has passed (the “covered FBAR period”), file any delinquent FBARs;
Pay a Title 26 miscellaneous offshore penalty. The full amount of the tax, interest, and miscellaneous offshore penalty due in connection with these filings should be remitted with the amended tax returns

The Title 26 miscellaneous offshore penalty is equal to 5 percent of the highest aggregate balance/value of the taxpayer’s foreign financial assets subject to the miscellaneous offshore penalty during the years in the covered tax return period and the covered FBAR period. For this purpose, the highest aggregate balance/value is determined by aggregating the year-end account balances and year-end asset values of all the foreign financial assets subject to the miscellaneous offshore penalty for each of the years in the covered tax return period and the covered FBAR period and selecting the highest aggregate balance/value from among those years.

A foreign financial asset is subject to the 5-percent miscellaneous offshore penalty in a given year in the covered FBAR period if:

The asset should have been, but was not, reported on an FBAR for that year;
The asset should have been, but was not, reported on a Form 8938 for that year; or
The asset was properly reported for that year, but gross income in respect of the asset was not reported in that year.

For information on the meaning of foreign financial asset, see the instructions for FinCEN Form 114 and the instructions for Form 8938. Foreign financial assets may include:

Financial accounts held at foreign financial institutions;
Financial accounts held at a foreign branch of a U.S. financial institution;
Foreign stock or securities not held in a financial account;
Foreign mutual funds; or
Foreign hedge funds and foreign private equity funds.

A taxpayer who is eligible to use these Streamlined Domestic Offshore Procedures and who complies with all of the instructions below will be subject only to the Title 26 miscellaneous offshore penalty and will not be subject to 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 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 return was fraudulent and/or that the FBAR violation was willful. Any previously assessed penalties with respect to those years, however, will not be abated.

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 deficiency.

Contact Us

To learn more about the Voluntary Disclosure Program and any other options available to you, contact Rosefelt Tax Law at 866-995-0061 or reach out by completing our ten-second contact us form to know your real options. We serve clients from around the world from our offices in Bethesda, Maryland (Greater Washington D.C. Metro area), or from our satellite offices by appointment in Fairfax, Virginia and Saint Petersburg Florida.