What is the “Streamlined Procedure” and what does it mean if you use this option?
The IRS announced a new updated Streamlined Procedure in June 2014. This procedure is a friendlier and less costly approach to bring non-compliant Americans back into the tax filing system. Here are the major points:
- Taxpayers will be required to file only 3 years of back tax returns and 6 years of FBARs. And if the IRS agrees that the taxpayer is eligible for the Streamlined Procedure, no penalties will be assessed for the late or corrected tax filings if the taxpayer meets the definition of being a non-US resident.
- Taxpayers must provide a statement of facts and certify that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part. In other words the tax non-compliance must have been ‘non-willful.’ Taxpayers should undertake some serious due diligence and obtain professional advice before signing a certification of non-willfulness and entering the Streamlined Program. You can read more about the non-willful requirement here.
- For those taxpayers residing outside the US who are eligible for the program, all penalties will be waived. Including, for example, the failure to file and/or failure to pay penalties and the accuracy-related penalty. Also FBAR penalties and other penalties for non-filing of information returns with regard to foreign assets.
- This procedure will not provide protection from possible civil penalties if IRS considers such penalties should apply. And it will not provide protection from possible criminal prosecution if the IRS and Department of Justice determine that the taxpayer’s particular circumstances warrant such prosecution. Taxpayers who are unsure of their potential for such sanctions should seek advice from a qualified US tax attorney. Most importantly, they should make sure they preserve the attorney-client privilege.
- All returns submitted under the streamlined procedures must have a valid Taxpayer Identification Number (TIN). For US citizens, resident aliens, and certain other individuals, the proper TIN is a valid Social Security Number (SSN). Unfortunately, many Americans do not have Social Security Numbers. One reason for this might be that while the individual may have been born in America, he or she left as a young child and did not obtain a SSN. The IRS is just starting to realize the severity of this problem and how it prevents taxpayers from becoming tax compliant. A solution has finally be devised. You can read more about here.