The Streamlined Filing Compliance Procedures are part of an IRS initiative designed to help U.S. taxpayers, including expats, who have failed to report foreign financial assets and pay all tax due in respect to those assets to become compliant with U.S. tax laws. These procedures are intended for taxpayers whose failure to report foreign financial assets and pay taxes was due to non-willful conduct, meaning their actions were not due to deliberate avoidance of U.S. tax laws.
There are two types of Streamlined Filing Compliance Procedures:
1. The Streamlined Foreign Offshore Procedures (SFOP):
This allows eligible taxpayers residing outside the United States to become compliant with their U.S. tax obligations regarding offshore income and assets.
Here's a summary of the eligibility requirements for SFOP:
- You must meet the non-residency requirement, which generally means that you have lived outside the United States for at least 330 days during one of the last three years.
- Non-Willful Conduct: Your failure to report all income, pay all tax, and submit all required information returns, including FBARs (Report of Foreign Bank and Financial Accounts), must have been non-willful. This means that your actions were unintentional or due to negligence, rather than intentional disregard of the law. You need to attach Form 14653 to your returns to certify your non-willful conduct.
- Tax Compliance: You must have failed to report income from foreign financial assets and pay tax on that income, and may also have failed to file an FBAR with respect to these assets, and such failures resulted from non-willful conduct.
- A taxpayer who is eligible to use these Streamlined Foreign Offshore Procedures and who complies with all of the instructions outlined below will not be subject to failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties, or FBAR penalties.
2. Streamlined Domestic Offshore Procedures (SDOP)
U.S. taxpayers (U.S. citizens, lawful permanent residents, and those meeting the US substantial presence test) are eligible to use these procedures.
Here's a summary of the eligibility requirements for SDOP
- Fail to meet the applicable non-residency requirement under SFOP
- You have previously filed a U.S. tax return (if required) for each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed.
- Non-Willful Conduct: Your failure to report all income, pay all tax, and submit all required information returns, including FBARs, must have been non-willful. You need to attach Form 14654 to your returns to certify your non-willful conduct.
- You have failed to report gross income from a foreign financial asset and pay tax as required by U.S. law, and may have failed to file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) and/or one or more international information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621) with respect to the foreign financial asset.
- You are subject to miscellaneous offshore penalty, which is equal to 5 percent of the highest aggregate balance/value of the taxpayer’s foreign financial assets that are subject to the miscellaneous offshore penalty during the years in the covered tax return period and the covered FBAR period.
Learn more about Streamlined Filing Compliance Procedures here: Streamlined Filing Compliance Procedures