By Lynn Eller, CPA, APCIT, PFS
For late expat filers, the IRS Streamlined Amnesty Program is the most utilized amnesty program to date.
Overview: IRS Streamlined Amnesty Program
The IRS offers tax amnesty programs for delinquent taxpayers — those who are late in filing or haven’t filed at all — who can prove that the delinquency was not intentional.
Taxpayers may have the opportunity to pay their taxes without facing penalties or interest for filing late.
Who Is Eligible for the IRS Streamlined Amnesty Program?
In 2014, the IRS expanded the eligibility requirements.
To be eligible, a taxpayer must meet the following criteria:
- Failed to file a U.S. tax return in any of the previous three years
- Able to certify that failures to submit were non-willful in nature
- Possess a valid taxpayer identification number
- Not currently under IRS examination regarding failure to file U.S. tax returns or report foreign financial assets in any of the previous three years
- Not currently under criminal investigation
What Must Be Filed?
Taxpayers must file three years of tax returns and six years of foreign bank and financial accounts (FBAR) and also provide a statement that certifies that the non-compliance was “non-willful.”
How Does the IRS Define Non-Willful Conduct?
The meaning of non-willful conduct is as follows:
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.
There are a variety of common scenarios that indicate non-willful conduct.
Two Types of Streamlined Procedures
There are two types of IRS Streamlined Procedures, one for U.S. taxpayers residing outside the U.S. and one for U.S. taxpayers residing in the U.S.
Streamlined Foreign Offshore Procedures (SFOP)
Taxpayers who qualify for SFOP avoid all penalties normally associated with delinquency. The taxpayer must only pay unpaid taxes and applicable interest. There is no additional penalty.
To qualify for SFOP, the taxpayer must meet the following criteria for any one of the most recent three years for the unsubmitted tax filing:
- Did not have a U.S. abode
- Was physically outside the U.S. for at least 330 days
For joint filers, both spouses must meet the above requirements.
Streamlined Domestic Offshore Procedures (SDOP)
The primary difference between SFOP and SDOP is this:
- In addition to being required to pay unpaid taxes and interest, SDOP may levy a 5% miscellaneous offshore penalty on the highest aggregate balance of the taxpayer’s foreign financial assets.
What Happens Once the IRS Processes the Submission?
No news is good news. The IRS does not send reply letters of acceptance or closing, so the best-case scenario is that the person filing does not hear back from the IRS.
However, if the IRS deems the submission to be inconsistent or incomplete, they will request more information. Expect the IRS to compare information across the tax returns and the FBARs to ensure consistency.
Common requests for more details pertain to:
- Account information
- Foreign entity information
- The professional on whom you relied for advice
- More information to support the claim of non-willful conduct
When participating in the IRS Streamlined Procedures, various tax considerations are involved.
Each person’s situation is unique and requires careful interpretation and application of the many IRS rules and regulations. To file previous returns in the best manner possible and minimize back taxes and penalties to the IRS, be sure to consult with an expert.
Contact the PBMares International Tax Team to learn more.