The central issue in these programs comes down to “willful versus non-willful conduct.” In order to qualify for an IRS Streamlined Procedure (Domestic or Foreign) the behavior of the US taxpayer must be considered to be “non-willful” in the eyes of the IRS.  While there is presently no clear standard for what constitutes willful vs. non-willful behavior there are many guidelines and Tax Court cases that provide insight. 

Generally speaking, non-willful conduct may be considered to include the failure to completely, accurately and fully disclose all account information, balances, investments, valuations, earned income and property values of foreign or offshore interests due to a simple failure to file, a misunderstanding of IRS forms, guidelines or US law, or inadvertent or inaccurate reporting or calculations on the part of the taxpayer.

In addition, the IRS cannot have begun either a civil examination or an IRS audit of the taxpayer.  Those who are already under audit or examination must fully and truthfully disclose all unreported offshore assets, accounts and income.

This is why it is important to work with an experienced tax attorney like Janathan Allen. We can provide sound advice and counsel and help to identify the best possible alternatives for your unique circumstances.

The Streamlined Filing Compliance Procedures are available to US taxpayers with foreign accounts or assets including:

Citizens of the United States
Lawful Permanent Residents
US Taxpayers Who Meet the “Substantial Presence” test of IRC section 7701(b)(3)

US taxpayers are required to provide disclosure relating to foreign bank or investment accounts, stocks, securities, precious metals, business ownership or interest, mutual funds or private securities via the Foreign Bank Account Report (FBAR) or other IRS international information forms.

What Filings and Tax Returns must a be Included in a Streamlined Filing?

Are you qualified to apply under the Streamlined Procedures?  If so, you will need to file up to 3 years of current and/or amended tax returns from previous years. The taxpayer will also be required to submit original or amended international information returns for the past six years including, but not limited to:

FinCEN Form 114 Report of Foreign Bank and Financial Accounts (FBAR) 

IRS Form 8938 – Statement of Specified Foreign Financial Assets

IRS Form 3520 – Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts

IRS Form 3520-A – Annual Information Return of Foreign Trust With a U.S. Owner

IRS Form 5471 – Information Return of U.S. Persons With Respect To Certain Foreign Corporations

IRS Form 8864 –

Return of U.S. Persons With Respect to Certain Foreign Partnerships

These procedures provide additional relief to US taxpayers who have “non-willfully” or inadvertently under-reported foreign bank or investment accounts, or gross income earned offshore from a variety of sources including:

• foreign stocks and investments
• foreign bank or investment accounts
• bank accounts for foreign branches of US banks
• foreign hedge funds and private security funds
• foreign mutual funds

The information relating to balances or income from these sources should have been fully disclosed on FBAR or other foreign information related IRS forms, and resulting US taxes should have been paid.

The IRS is offering resident US taxpayers the opportunity to avoid paying additional penalties including the FBAR penalties, information return penalties or accuracy-related penalties. These penalties can amount to a significant additional cost, especially when taken over a period of several years. The “look-back” period for the IRS relating to these issues is 8 years.

The taxpayer will still be responsible for paying the offshore penalty provisions contained within Title 26, equal to 5% of the highest aggregated balance for all accounts and investments associated with these provisions during the years in the “covered tax return period and covered FBAR period.” What this means is the IRS will take the total amount of all accounts and the value of all investments and select the highest valuation point – the highest total value and balance – across all of the applicable years, and apply the 5% penalty to that amount, regardless of the present balance or subsequent use of those funds.

The new guidelines in the Streamlined Domestic Offshore Procedures speak directly to the 5% penalty for not reporting asset/income on FBAR FinCEN form 114), the 5% penalty for not reporting assets/income on IRS form 8938 Statement of Specified Foreign Financial Assets, and the 5% penalty for reported accounts/ownership where gross income was not reported or under-reported.