What are the IRS Streamlined Filing Compliance Procedures? Staying Tax compliant as a Digital Nomad or American Expat

Streamlined Filing with IRS

In an increasingly globalized economy, international corporations and individuals (including digital nomads and American expatriates) often hold financial assets in multiple countries. Ensuring compliance with U.S. tax laws can be particularly challenging, especially for those who have inadvertently failed to report foreign financial assets. The IRS Streamlined Filing Compliance Procedures offer a simplified and less punitive pathway to rectify such oversights. 

 

What Are the Streamlined Filing Compliance Procedures?

The IRS Streamlined Filing Compliance Procedures were introduced to help U.S. taxpayers who have failed to report foreign financial assets and pay the associated taxes due to non-willful conduct. This program is part of the IRS's broader effort to encourage voluntary compliance and reduce the penalties associated with unintentional non-compliance.

Eligibility Criteria

To qualify for the Streamlined Filing Compliance Procedures, taxpayers must meet specific criteria:

1. Non-Willful Conduct: The failure to report foreign financial assets and pay taxes must be due to non-willful conduct. This means the taxpayer’s actions were not intentional but rather due to negligence, oversight, or misunderstanding.
2. Certification: Taxpayers must certify that their previous non-compliance was non-willful by submitting a signed statement (Form 14653 for U.S. residents or Form 14654 for non-residents).
3. Filing History: Taxpayers must be current with their filing obligations, meaning they have filed all required U.S. tax returns for the past three years.

Requirements Based on Residency

There are two distinct types of Streamlined Procedures based on an individual's tax residency. One is designed for U.S. taxpayers living abroad, known as the "Foreign Offshore Procedures," while the other is for U.S. taxpayers residing within the United States, called the "Domestic Offshore Procedures."

 

The criteria and consequences vary notably between these two programs. Most notably, the Domestic Offshore Procedures impose a 5% penalty on the highest aggregate balance/value of foreign financial assets, whereas the Foreign Offshore Procedures do not include this penalty.

 

For U.S. Residents:

• Amended Tax Returns: File amended tax returns (Forms 1040X) for the last three years, including all required international information returns.
• FBAR Filing: Submit delinquent FBARs (FinCEN Form 114) for the past six years.
• Penalty: A 5% penalty on the highest aggregate balance/value of the taxpayer’s foreign financial assets during the covered tax years.

For Non-Residents:

• Tax Returns: File the last three years of tax returns (Forms 1040 or 1040NR) if they have not been previously filed.
• FBAR Filing: Submit delinquent FBARs for the past six years.
• Penalty: Generally, no penalties are assessed for non-resident taxpayers.

Advantages of the Streamlined Procedures

1. Reduced Penalties: The program offers significantly lower penalties compared to other disclosure options, making it financially less burdensome.
2. Simplified Process: The streamlined nature of the program simplifies the disclosure process, making it more accessible.
3. Opportunity for Compliance: It provides a valuable opportunity for taxpayers to become compliant without facing the severe penalties associated with willful non-compliance.

Steps to Participate

1. Assess Eligibility: Determine whether your non-compliance was non-willful and if you meet the residency and filing history criteria.
2. Document Collection: Gather all necessary documentation, including financial statements, tax returns, and FBAR forms for the relevant years.
3. Complete Certification: Fill out the appropriate certification form (Form 14653 or Form 14654) to attest to your non-willful conduct.
4. File Returns and FBARs: Submit the required amended or delinquent tax returns and FBARs through the proper channels.
5. Pay Taxes and Penalties: Calculate and pay any owed taxes and applicable penalties as determined by the program guidelines.

Conclusion

For international corporations and individuals with undisclosed foreign financial assets, the IRS Streamlined Filing Compliance Procedures offer a vital pathway to rectify past non-compliance. By understanding the eligibility requirements, benefits, and necessary steps, taxpayers can achieve compliance and avoid severe penalties. Our law firm is dedicated to providing the expertise and support needed to navigate these procedures successfully. Contact us today to learn more about how we can assist you in achieving full compliance with U.S. tax laws.

 

Della Torre Law, PLLC