Streamlined Filing Compliance Procedures

Overview

The purpose of the Streamlined Filing Compliance Procedures (“Streamlined Procedures”) is to bring U.S. taxpayers into offshore filing compliance. The Streamlined Procedures are available to taxpayers that did not willfully fail to report foreign financial assets and pay any tax due in respect of those assets. In particular, the Streamlined Procedures are intended to resolve taxpayers’ tax and penalty obligations by providing taxpayers with expedited procedures and terms for filing amended or delinquent returns.

Since first being offered in 2012, the Streamlined Procedures have been expanded to include both Streamlined Foreign and Domestic Offshore Procedures. Both sets of Procedures will be explored in greater detail in later articles.

Eligibility for the Streamlined Procedures

The Streamlined Procedures are intended for individual taxpayers; however, the estate of an individual taxpayer may also be eligible. Moreover, the Streamlined Procedures are available to both U.S. individual taxpayers residing within or outside of the United States. Depending on the taxpayer’s place of residence, the taxpayer will fall into the Streamlined Foreign Offshore Procedures (if residing abroad) or Streamlined Domestic Offshore Procedures (if residing within the U.S.). The following criteria must also be met:

Taxpayer must certify that their conduct was non-willful

Taxpayers using either the Streamlined Foreign or Domestic Offshore Procedures must certify that their failure to report all income, pay all tax, and submit any required information returns was due to non-willful conduct. The IRS has long “willfulness” as a voluntary intentional violation of a known legal duty. Non-willful conduct includes:

The IRS has not initiated a civil examination of taxpayer’s returns for any taxable year.

Regardless of whether the audit relates to undisclosed foreign financial assets, if the IRS has initiated an audit the taxpayer will be ineligible to use the Streamlined Procedures.

Taxpayer is not under criminal investigation by the IRS Criminal Investigation Division (“CID”).

Like the civil examination requirement above, a taxpayer under criminal investigation by IRS CID is ineligible to use the Streamlined Procedures.

Taxpayers who have previously filed delinquent or amended returns must pay previous penalty assessments.

If the taxpayer attempted to address their tax and information filing obligations by making a “quiet disclosure” (filing the delinquent or amended returns outside of the Offshore Voluntary Disclosure Program), the taxpayer may still be eligible for the Streamlined Procedures if they pay any penalty assessments previously made.

Taxpayers need a valid Taxpayer Identification Number to participate in the Streamlined Procedures.

All returns submitted under the Streamlined Procedures must be made by U.S. citizens, resident aliens, and certain other individuals. For taxpayers who are ineligible for a Social Security Number and do not have an ITIN, a submission may be made under the Streamlined Procedures if accompanied by a completed ITIN application.

Treatment Under the Streamlined Procedures

Unlike some of the other disclosure programs that the IRS has to offer, the Streamlined Procedures do not provide a closing agreement upon completion. Instead, any tax returns submitted under either the Streamlined Foreign or Domestic Offshore Procedures will be processed like any other return submitted to the IRS.

Returns submitted under the Streamlined Procedures may be subject to audit, but using the Streamlined Procedures does not guarantee that such returns will be subject to audit. In addition, the returns may be subject to verification procedures in order to ensure that the returns are accurate and complete. This may include checking the information submitted by the taxpayer against information received from banks, financial institutions, and various other sources. As a result, the returns submitted may be subject to audit, additional penalties, and potential criminal exposure (if appropriate).

If you are concerned that the IRS may deem your conduct “willful,” you should consult a tax attorney. The IRS offers a Voluntary Disclosure Practice (“VDP”) through the IRS CID. For taxpayers who failed to report income, pay tax, or submit required information returns and whose conduct is “willful,” the IRS’s VDP will provide taxpayers with assurance that they will not be criminally prosecuted.

Coordination with Offshore Voluntary Disclosure Program and Streamlined Procedures

Please note that the OVDP closed on September 28, 2018; however, this segment is for taxpayers who may still be waiting for their OVDP closing agreement.

The Offshore Voluntary Disclosure Program (“OVDP”) was a voluntary disclosure program specifically designed for taxpayers with potential exposure to criminal liability and/or substantial civil penalties due to willful conduct in failing to report foreign financial assets or pay all tax due in respect of those assets. OVDP was designed to provide taxpayers protection from criminal liability and terms for resolving any tax and penalty obligations.

If a taxpayer submitted an OVDP voluntary disclosure letter on or after July 1st, 2014, the taxpayer is no longer eligible to use the Streamlined Procedures. On the other hand, if a taxpayer was eligible to use the Streamlined Procedures, submitted their OVDP voluntary disclosure letter prior to July 1st, 2014, and who still does not have an executed OVDP closing agreement, that taxpayer may request treatment under the Streamlined Procedures.

If the taxpayer requests treatment under the Streamlined Procedures, the taxpayer will be required to certify that their conduct was not willful in failing to report all income, pay all tax, or submit the necessary information returns. The taxpayer does not need to opt out of the OVDP to do so. As part of the OVDP process, the IRS will consider all of the facts and circumstances before making a determination as to whether or not to incorporate the Streamlined Procedures penalty terms in the OVDP closing agreement.

If you have failed to report foreign financial assets or pay any tax due in respect of those assets, contact The Wilson Firm today. We have handled a number of offshore disclosure and are here to assist.