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Understanding the Streamlined Filing Compliance Procedures

The Streamlined Filing Compliance Procedures, also known as the “streamlined procedures,” offer a solution for taxpayers who have failed to report income from foreign financial assets or file necessary information returns like FBARs (Report of Foreign Bank and Financial Accounts) and Form 8938 (Statement of Specified Foreign Financial Assets) and can certify that their failure was not a result of willful conduct. These procedures are designed to assist U.S. taxpayers offering a streamlined and more lenient way to come into compliance with U.S. tax laws.

Key Changes and Eligibility Criteria

Since their introduction on September 1, 2012, the streamlined procedures have evolved to accommodate a broader group of U.S. taxpayers. Major changes include:

• Extending eligibility to U.S. taxpayers residing within the United States.
• Removing the $1,500 tax threshold.
• Eliminating the risk assessment process.

Eligibility Criteria: Who Qualifies?

The modified streamlined procedures are tailored for individual taxpayers and the estates of individual taxpayers. They are accessible to both U.S. individual taxpayers residing outside and inside the United States. Since the eligibility is different in each option, it is critical that taxpayers which is the option available for them, if any. Please refer to the specific details in the IRS website:

• (SDO) Streamlined Domestic Offshore Procedures: U S Taxpayers Residing in the U. S.
• (SFO) Streamlined Foreign Offshore Procedures: U.S. Taxpayers Residing Outside the  U. S. 

In both scenarios, taxpayers must certify that their conduct was non-willful, indicating negligence, inadvertence, mistake, or a good faith misunderstanding of the law’s requirements. The certification form must be signed under penalties of perjury.
Paid preparers, if applicable, must also sign the form.

Exclusions: When Streamlined Procedures May Not Apply

Taxpayers currently under civil examination by the IRS for any taxable year are not eligible to use the streamlined procedures. Similarly, individuals under criminal investigation by IRS Criminal Investigation are also ineligible.

Previous Filing History and Penalty Assessments

Taxpayers who have previously filed delinquent or amended returns to address U.S. tax and information reporting obligations must pay any previous penalty assessments. While they can still utilize the streamlined procedures, previous penalties will not be abated.

⚖️Penalties

In each procedure, penalties are to be handled differently, with the most significant difference being the 5% miscellaneous offshore penalty on certain foreign financial assets, which is only applicable in Streamlined Domestic Offshore Procedures for U.S. Taxpayers Residing in the U.S.

🪪Valid Taxpayer Identification Number (TIN)

Participation in the streamlined procedures requires a valid Taxpayer Identification Number (TIN). U.S. citizens, resident aliens, and certain other individuals should provide a valid Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). For those ineligible for an SSN or ITIN, filing under the streamlined procedures is not possible without a complete ITIN application.

🕒 When to file

There is no specific deadline while the procedures are still available.
You are expected to work to prepare and file as soon as you become aware of your non-compliance situation.

🤔How to File

While FBAR are filed electronically, the rest of the Streamlined package must be sent by the taxpayer in paper form (electronic submissions will not be accepted by the IRS) to address described in each procedure.

Consideration for Criminal Investigation Voluntary Disclosure

Taxpayers concerned about willful conduct and potential criminal liability should explore the IRS Criminal Investigation Voluntary Disclosure Practice.

📭 Post-Submission Process

Returns filed under the streamlined procedures will undergo standard processing, similar to other IRS submissions. The IRS does not send acknowledgments for received returns, and no closing agreement is signed. While these returns are not automatically audited, they remain subject to standard audit selection processes like any other Tax or Informational Returns. Accuracy and completeness may be verified against external sources.

🔍 Future Compliance 

After completing the streamlined procedures, taxpayers are expected to adhere to U.S. tax laws in all subsequent years and file returns through regular procedures.

Conclusion:

The Streamlined Filing Compliance Procedures offer an opportunity to correct past tax non-compliance regarding foreign financial assets. However, it’s crucial to follow the specific requirements, provide accurate information, and include a comprehensive narrative statement. Always consult the latest IRS guidance and consider seeking professional advice to ensure you meet all the necessary criteria and complete the process correctly.

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🛠️DIY: If you want to file on your own, you will find the necessary guidance and forms here:

For specific instructions, eligibility criteria, and the latest guidance on the Streamlined Filing Compliance Procedures, please refer to the official IRS resources:

• Streamlined Filing Compliance Procedures Overview
• Streamlined Domestic Offshore Procedures: U S Taxpayers Residing in the U. S.
  • Certification by U.S. Person Residing in the U.S. (Form 14654)
    
• Streamlined Foreign Offshore Procedures: U.S. Taxpayers Residing Outside the  U. S. 
  • Certification by U.S. Person Residing Outside of the U.S.(Form 14653)
    
• Delinquent FBAR Submission Procedures | Internal Revenue Service
• IRS Instructions for Form 8938