When moving abroad, it’s often easy to get caught up in the new and exciting. Expats pick up their lives and migrate around the world, in some cases never intending to reside stateside again. To embrace the “new” of their expatriate adventure, US citizens may overlook their “old” responsibilities, be completely unaware that these still exist or that they may need to catch up on taxes.
A great example of this is their remaining responsibility to file US taxes. For many of the estimated 9 million US expats currently scattered worldwide, it would come as a great shock to learn that they continue to have a tax-filing obligation with the IRS each year. This is because the US is one of only two countries that taxes its citizens on their worldwide income regardless of their location (the other country is Eritrea, for all you trivia buffs out there). It is not uncommon to come across expats who have not submitted tax returns in years, purely because they were unaware of the need to do so.
Can anything be done for expats that find themselves in this predicament? If you haven’t filed in ten years, will the IRS want all ten returns? Can I catch up on taxes without facing harsh penalties? If you find yourself asking those questions, the IRS’s Streamlined Filing Procedures may be the answer you are looking for.
What Are the Streamlined Filing Procedures?
The Streamlined Filing Procedures were created in 2012 as an alternative to the IRS’s other disclosure programs (for example, the now-closed Offshore Voluntary Disclosure Program) as a means of encouraging US expats to get caught up on their delinquent taxes. The program was aimed at those individuals who were considered low risk and was designed to be a less burdensome way to get caught up as fewer years of returns were required to be filed. Unfortunately, the program in its original incarnation saw many expats get bumped out of the low-risk category, meaning its intended targets were being missed. Fortunately, the IRS removed the restrictions in 2014, opening up the program to a broader audience in an effort to help more taxpayers catch up on taxes.
Who Qualifies For the Streamlined Filing Procedures?
The removal of the program restrictions in 2014 was a real game changer. At this point in time, to qualify for the program, you need to show that the reason for not filing in the past was simply because you did not know that you were required to do so. As part of the package that you will mail off to the IRS, you will be required to include a signed statement (Form 14653) certifying this fact.
What Do I Need to Do to Catch Up on Taxes?
Unlike its older cousin, the OVDP, for which you were required to submit eight years of returns as well an array of additional forms, the Streamlined Filing Procedures are, well, streamlined. You will need to submit:
- The most recent three years of federal returns. This can include filing amended returns if incorrect returns have been filed previously;
- The most recent six years of FBAR forms (foreign bank account reporting). Generally, you would be required to file the FBAR if the account balances of all of your non-US bank accounts combined were higher than $10,000 at any point during the year. If you are filing under the program, you will be required to file the forms regardless of whether or not this $10,000 threshold was met. These will be submitted online (as this is the requirement for all FBAR forms); and
- Your signed “Certification by U.S. Person Residing Outside of the U.S” statement (Form 14653). This statement certifies that (1) you are eligible for the program; (2) that all FBAR forms have been filed; and (3) that your failure to file resulted from non-willful conduct.
What Can I do to Prepare for Streamlined Filing?
We recommend selecting a tax professional, gathering documents, and learning about all the steps to prepare for Streamlined Filing.
Will I Have to Pay Penalties?
The good news is: no, you won’t. If you qualify for the program and comply with all the instructions for filing, you will not be subject to failure-to-file, failure-to-pay, or FBAR penalties.
What if I Don’t Qualify?
If your lack of filing was “willful,” meaning you knew you had to file but decided not to, historically your next best option has been the OVDP. This program, unfortunately, has been closed as of September 2018. However, because the circumstances of taxpayers with foreign financial assets vary widely, the IRS will continue offering the following options for addressing previous failures to comply with U.S. tax and information return obligations with respect to those assets:
- IRS-Criminal Investigation Voluntary Disclosure Program;
- Delinquent FBAR submission procedures; and
- Delinquent international information return submission procedures.
Ready to Catch Up on Taxes?
Our expert expat CPAs and IRS Enrolled Agents are on standby, ready to help you through every step of the process to make catching up as stress-free as possible with our Streamlined Filing Package. Get started today and get back on track with your taxes to get the peace of mind you deserve.