The IRS Streamlined Filing Compliance Procedures for U.S. Expats

The IRS Streamlined Filing Compliance Procedures let U.S. expats who did not know they had to file catch up on their U.S. taxes without penalties. You file the last three years of federal returns and the last six years of FBARs, certify on Form 14653 that the failure was not willful, and pay any tax and interest due. For expats, the version that applies is the Streamlined Foreign Offshore Procedures, and under that version there is no offshore penalty at all. Most expats who go through it owe little or no U.S. tax once the Foreign Earned Income Exclusion and Foreign Tax Credit are applied. This guide covers who qualifies, exactly what is filed, what it costs, and what happens after you submit.

What the streamlined procedures are

The IRS introduced the streamlined procedures in 2012 for taxpayers living abroad and expanded them in 2014 to cover U.S. residents and to remove the original risk questionnaire. The purpose has not changed since: give people who fell behind by mistake a way to come forward, file what was missed, and pay what is owed without the failure-to-file, failure-to-pay, accuracy, information return, and FBAR penalties that would otherwise apply.

The IRS calls it a procedure. Most people call it amnesty, and in practice that is what it is, with two conditions. You have to come forward before the IRS contacts you, and you have to be able to say truthfully that you did not know. Someone who knew about the filing requirement and chose to ignore it is not eligible, and certifying otherwise on Form 14653 is a false statement to the IRS.

Foreign or Domestic: which version applies to you

There are two versions. Which one you use depends on where you lived during the three years being filed, and the difference in cost is significant.

The rest of this guide covers the foreign version, since that is the one that applies to expats. If you moved back to the United States during the three-year window, whether you still qualify for the foreign version depends on the non-residency test below, and it is worth checking before assuming you owe the 5 percent.

Who Qualifies

Four conditions. All of them must be met.

1. The failure to file was not willful

Non-willful conduct means the failure came from negligence, inadvertence, mistake, or a good-faith misunderstanding of the law. Not knowing that U.S. citizens must file from abroad, being told by a preparer that you did not need to, believing your foreign pension was not reportable: these are non-willful. Knowing the rule and deciding not to comply is not, and neither is deliberately avoiding finding out. You certify to this on Form 14653 and support it with a written statement of facts.

2. You meet the non-residency test

In at least one of the three most recent tax years for which the U.S. tax return due date, including any properly applied-for extension, has passed, you had no U.S. abode and were physically outside the United States for at least 330 full days. You do not have to meet the test in all three years. One year is enough.

3. You have a Social Security number or ITIN

The IRS cannot process a streamlined submission without a taxpayer identification number. If you do not have one, you will need to apply for an ITIN. Tax Samaritan can submit the ITIN application with the streamlined package.

4. The IRS has not already started

If the IRS has opened a civil examination of any of your returns, for any year and any issue, you are not eligible. The same applies to a criminal investigation. A notice about a specific item is not necessarily an examination, so check before assuming you are disqualified. Returns already filed on time but with errors can be corrected through streamlined; returns already under audit cannot.

What you must file

Three years of federal income tax returns

Original or amended Form 1040 returns for the most recent three tax years for which the due date, including extensions, has passed. Each return must include every international information return that applies to you for that year:

• Form 2555, Foreign Earned Income Exclusion
• Form 1116, Foreign Tax Credit
• Form 8938, FATCA statement of specified foreign financial assets
• Form 5471, foreign corporations
• Form 3520 and 3520-A, foreign trusts and certain foreign gifts
• Form 8621, passive foreign investment companies (most foreign mutual funds and ETFs)
• Form 8858, 8865, and others where applicable

Six years of FBARs

FinCEN Form 114 for each of the most recent six years in which your foreign accounts exceeded $10,000 combined. These are filed electronically through the BSA E-Filing System, separately from the returns. Select “Other” as the reason for late filing and enter “Streamlined Filing Compliance Procedures. Our FBAR filing guide covers what counts as a reportable account.

Form 14653

One signed certification of non-willful conduct, with a written statement of the facts. Covered in its own section below.

Payment

Any tax and interest shown on the three returns, paid with the submission. For many expats the tax is zero or close to it after the Foreign Earned Income Exclusion and Foreign Tax Credit. Interest is charged on any tax from the original due date of each return.

Marking

Write “Streamlined Foreign Offshore” in red ink at the top of the first page of each return and of Form 14653. The IRS uses the marking to route the package. Returns filed without it are processed as ordinary late returns, with penalties.

Form 14653: the non-willful certification

Form 14653 is the document the IRS reads most closely. The rest of the package is arithmetic; this is the part where you explain, in your own words, why three years of returns and six years of FBARs were not filed.

The IRS is deciding one question: did you know? The statement that works is a plain account of the facts, specific to you, that lets a reviewer conclude you did not. Where you lived, how you understood your obligations at the time, who advised you and what they said, how you found out, and what you did once you knew. Both spouses sign one form on a joint submission, and the facts for each should be consistent.

Our Form 14653 guide covers what the statement must contain and how to write it.

What the streamlined procedure costs

There are three costs to think about, and the first is usually the smallest.

What you pay the IRS. Tax and interest for the three years, and nothing else. No failure-to-file penalty, no failure-to-pay penalty, no accuracy penalty, no FBAR penalty, no offshore penalty. For an expat earning under the Foreign Earned Income Exclusion limit, or paying foreign tax at a rate above the U.S. rate, the tax is often zero and the interest on zero is zero.

What preparation costs. Tax Samaritan’s fee depends on the number of years, income types, foreign accounts and assets, and any additional information returns required. You receive a fixed quote before any work begins.

What it costs not to do it. The penalties the procedure waives. Non-willful FBAR penalties alone run to $16,536 per violation, and the information return penalties for Forms 5471 and 8938 start at $10,000 each per year, while Form 3520 penalties vary depending on the type of reporting failure. Once the IRS contacts you first, none of those are waivable through this procedure

Step by step

1. Confirm eligibility. The four conditions above, and the non-residency test in particular. An enrolled agent can settle this in one conversation.

2. Gather records for the three return years and six FBAR years. Income statements from foreign employers, foreign tax paid, bank and investment statements showing the highest balance each year, records of any foreign business, trust, or fund holdings. Missing one required information return makes the package incomplete.

3. Prepare the three returns. Apply the Foreign Earned Income Exclusion and Foreign Tax Credit where they apply. Report every foreign account and asset. Underreporting on a streamlined return is the mistake that turns a penalty-free filing into an examination.

4. File the six FBARs electronically. Through the BSA E-Filing System, before or at the same time as the returns are mailed. Check every account number and balance against the statements.

5. Complete and sign Form 14653. Write the statement of facts. Both spouses sign on a joint submission.

6. Mark, assemble, mail, and pay. Red-ink marking on each return and on Form 14653. Include all attachments. Mail the package to:

Internal Revenue Service
3651 South I-H 35
Stop 6063 AUSC
Attn: Streamlined Foreign Offshore
Austin, TX 78741

Pay the tax and interest with the submission or by direct pay referencing the years.

7. Keep a complete copy. The IRS does not acknowledge receipt. Your copy, the mailing receipt, and the BSA confirmations are the record that you filed.

After you submit

Processing often takes three to six months, but it can take longer depending on IRS workload. The IRS does not send an acceptance letter. If you hear nothing, the submission was accepted. A letter after submission usually concerns a specific item, such as a payment that did not match or a missing schedule, rather than a rejection of the whole package.

Entering the program does not trigger an audit. The IRS can examine any return, streamlined or not, but the procedure was built to bring people into compliance, not to select them for examination.

From the next filing season on, you file on time: the return by the June 15 automatic extension for taxpayers abroad, and the FBAR by October 15. A second lapse after a streamlined submission is much harder to characterize as non-willful.

If you do not qualify

Only the FBARs were missed. If every return was filed and reported all foreign income, you do not need streamlined. The Delinquent FBAR Submission Procedures let you file the late FBARs with an explanation and no penalty. Our delinquent FBAR guide covers them.

Only information returns were missed. If the returns were filed and the tax was right but a Form 5471, 3520, or similar was left off, the Delinquent International Information Return Submission Procedures apply. Penalties can still be assessed, and a reasonable cause statement is how they are contested.

The failure was willful. The Voluntary Disclosure Practice is the route for taxpayers who knew and did not file. It carries penalties, and in exchange it provides protection from criminal prosecution. This is a conversation to have with a professional before filing anything.

Streamlined and FATCA

FATCA is the reason most expats find out they are behind. Foreign banks report U.S. account holders to the IRS every year, and the IRS matches those reports against filed returns. Form 8938, the FATCA statement, is one of the information returns included in your three streamlined returns. The bank reporting is why the procedure has to be used before the IRS makes contact: once a mismatch produces a letter, the door to streamlined has closed.

Frequently Asked Questions (FAQ)

Tax Samaritan’s enrolled agents have prepared streamlined submissions for U.S. expats around the world since the procedure opened. Our streamlined catch-up filing service covers eligibility review, all three returns and six FBARs, Form 14653, and the submission itself, with a fixed quote before work begins. Request a free tax quote to start.