The IRS has outlined general eligibility requirements to enter into the Streamlined Filing Compliance for taxpayer who failed to report all foreign income, pay all tax, and submit all required foreign information returns including FBAR (FinCEN 114). These requirements include:
- The conduct was non-willful.
- The IRS has not initiated a civil examination for any taxable year.
- Have not made a submission into the Offshore Voluntary Disclosure Program.
Depending on a taxpayer’s situation, they are eligible for one of two Streamline programs; the Streamlined Foreign Offshore Procedures where the taxpayer pays their tax and a 0% offshore penalty, and the Streamlined Domestic Offshore Procedures where the taxpayer pays a 5% penalty of their highest aggregate balance of foreign assets in addition to their tax. A 20% negligence penalty and interest back to the original filing dates of the returns is also due under both programs based on the amount of tax at issue on the three years of amended returns.
Streamlined Foreign Offshore Requirements (0% Penalty)
Included in this submission is Form 14653 – Certification by U.S. Person Residing Outside of the United States. The eligibility requirement includes:
- Non-Residency. This requirement differs depending on citizen/residency status.
- S. Citizens or Lawful Permanent Residents: in any one or more of the most recent three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the individual did not have a U.S. abode and the individual was physically outside the United States for at least 330 full days.
- Non-Resident Aliens: in any one or more of the last three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the individual did not meet the substantial presence test.
- Non-Willful. Have failed to report the income from a foreign financial asset and pay tax as required by U.S. law, and may have failed to file an FBAR with respect to a foreign financial account, and such failures resulted from non-willful conduct.
Streamlined Domestic Offshore Requirements (5% Penalty)
Included in this submission is Form 14654 – Certification by U.S. Person Residing in the United States. The eligibility requirement includes:
- Not meet the Streamlined Foreign Offshore Requirements. Fail to meet the applicable non-residency requirement described in the “Eligibility for the Streamlined Offshore Procedures” (for joint return filers, one or both of the spouses must fail to meet the applicable non-residency requirement described in the “Eligibility for the Streamlined Offshore Procedures”);
- 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 (FinCEN Form 114) and/or one or more international information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621) with respect to the foreign financial asset, and
- Non-Willful. 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
