Have You Resided Outside of the U.S. Since January 1, 2009? – The Streamlined Filing Compliance Procedures Might Help You
IRS voluntary disclosure programs are part of a wider effort by the IRS to stop tax evasion.
In 2012, the IRS announced streamlined filing compliance procedures that are beneficial to some U.S. taxpayers living abroad that have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), FinCen Form 114 (formerly Form TD F 90-22.1), but have recently become aware of their filing obligations and now seek to come into compliance with the law.
These procedures are exclusively for non-residents if the U.S. including, but not limited to, dual citizens who have not filed U.S. income tax and information returns.
The Streamlined Filing Compliance Procedures Are For Taxpayers With A Low Compliance Risk
The streamlined procedure is designed for taxpayers that present a low compliance risk.
While the IRS will review all submissions through the streamlined filing compliance procedures, the intensity of the review will vary according to the level of compliance risk presented by the submission.
For those taxpayers presenting low compliance risk, the review will be expedited and the IRS will not assert penalties or pursue follow-up actions.
Submissions that present higher compliance risk are not eligible for the streamlined processing procedures and will be subject to a more thorough review and possibly a full examination, which in some cases may include more than three years, in a manner similar to opting out of the Offshore Voluntary Disclosure Program (OVDP).
What Are The Filing Requirements For The Streamlined Filing Compliance Procedures
Taxpayers utilizing this procedure will be required to file delinquent tax returns, with appropriate related information returns (such as Form 3520, Form 5471, etc.), for the past three years and to file delinquent FBARs (FinCen Form 114, formerly known as the Form TD F 90-22.1) for the past six years.
Payment for the tax and interest, if applicable, must be remitted along with the delinquent tax returns
Eligibility Requirements For The Streamlined Filing Compliance Procedures
Non-resident U.S. taxpayers who have resided outside of the U.S. since January 1, 2009, and who have not filed a U.S. tax return during the same period are eligible to make a submission using the streamlined filing compliance procedures.
Amended returns submitted through this program are treated as high risk returns and subject to examination, except for those filed for the sole purpose of submitting late-filed Forms 8891 to seek relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty.
If you need to file an amended return to correct previously reported or unreported income, deductions, credits, tax etc., you should not use this streamlined filing compliance procedures. Depending on your circumstances, you may want to consider participating in the Offshore Voluntary Disclosure Program.
Determination Of Risk With The Streamlined Filing Compliance Procedures
The IRS will determine the level of compliance risk presented by the submission based on information provided on the returns filed and based on additional information provided in response to a Questionnaire required as part of the submission.
Low risk is predicated on simple returns with little or no U.S. tax due.
Absent any high risk factors, if the submitted returns and application show less than $1,500 in tax due in each of the years, they will be treated as low risk and processed in a streamlined manner.
The risk level may rise if any of the following are present:
- If any of the returns submitted through this program claim a refund;
- If there is material economic activity in the United States;
- If the taxpayer has not declared all of his/her income in his/her country of residence;
- If the taxpayer is under audit or investigation by the IRS;
- If FBAR penalties have been previously assessed against the taxpayer or if the taxpayer has previously received an FBAR warning letter;
- If the taxpayer has a financial interest or authority over a financial account(s) located outside his/her country of residence;
- If the taxpayer has a financial interest in an entity or entities located outside his/her country of residence;
- If there is U.S. source income; or
- If there are indications of sophisticated tax planning or avoidance.
Don’t Qualify For The Streamlined Filing Compliance Procedure – Now What?
If you do not meet the criteria for the Streamlined Filing Compliance Procedure and are concerned about the risk of criminal prosecution, the Offshore Voluntary Disclosure Program (OVDP) may be a viable option for taxpayers with higher compliance risk, depending on the facts and circumstances.
Only You Can Make That First Step To Get Back In Compliance With The Law
The streamlined filing compliance procedures present a great opportunity for taxpayers that meet the eligibility requirements and present a low risk. It is an excellent alternative to the Offshore Voluntary Disclosure Program (OVDP).
If you feel that you may be an eligible taxpayer, you should consult us here at Tax Samaritan to prepare your delinquent returns and to determine if you are indeed an excellent candidate for the streamlined compliance procedures.
Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for our clients. We are not only tax preparation and representation experts, but strive to become valued business partners. Our professional approach and commitment will help get you on the right track.
Tax Samaritan is committed to understanding our client’s unique needs; every tax situation is different and requires a personal approach in providing realistic and effective solutions such as the streamlined filing compliance procedures.
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Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US tax preparation and representation. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.
When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts). If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).
Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.