Many expats live abroad for years without realizing they needed to file US tax returns each year. If this is you, don’t panic. The IRS has created a way for you to get caught up penalty-free called the Streamlined Filing Compliance Procedures.
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.
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.
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.
What can be done for expats who 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 Compliance Procedures?
The Streamlined Filing Procedures were created in 2012 to encourage US expats to get caught up on their delinquent taxes. The program was originally thought of as an alternative to the IRS’s other disclosure programs (for example, the now-closed Offshore Voluntary Disclosure Program).
The Streamlined Filing Compliance Procedures were created to help individuals who were considered low-risk become tax compliant. The process was designed to be a less burdensome way to get caught up. Streamlined Filing requires only a certain number of tax returns to be filed, which can cut down on the time and effort needed to catch up.
In its original incarnation, the program was more strict and many expats got bumped out of the low-risk category. Fortunately, the IRS removed these restrictions in 2014, opening up the program to a broader audience in an effort to help more taxpayers catch up on taxes.
Can Expats Use the Streamlined Filing Procedure?
Expats can use the Streamlined Foreign Offshore Procedures to become tax compliant while living abroad. This is the program that was designed specifically for Americans living outside the US to catch up on missed taxes.
This differs from the Streamlined Domestic Offshore Procedures, which is a version of the Streamlined program available to current US residents.
Who Qualifies For the Streamlined Filing Procedures?
Currently, to qualify for the Streamlined program, you must:
- Show that the reason for not filing in the past was simply because you did not know that you were required to do so
- Not have had an abode in the US for one or more of the three most recent tax years
- Have been physically present outside the United States for at least 330 full days during one or more of the three most recent tax years
To prove eligibility for the Streamlined program, you will be required to include a signed statement (Form 14653) certifying this fact as part of the package that you will mail off to the IRS.
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.
To complete your Streamlined Filing, you will need to submit:
- The most recent three (3) years of federal tax returns. This can include filing amended returns if incorrect returns have been filed previously.
- The most recent six (6) 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 Forms Are Required for Streamlined Filing?
To file under the Streamlined Compliance Procedures, expats will need to complete all the tax forms required for each federal and FBAR filing, along with a special form to certify eligibility for the program.
Tax forms required for Streamlined Filing include:
- Form 1040 – US Individual Income Tax Return for your three years of federal tax returns
- FinCen Form 114 for your six years of FBARs
- Form 14653 to certify that your prior lack of filing was non-willful
- Other common expat tax forms that may be required for your federal tax returns include:
- Form 2555 – Foreign Earned Income Exclusion (FEIE)
- Form 1116 – Foreign Tax Credit (FTC)
- Form 8938 – Statement of Specified Foreign Assets (required per FATCA legislation)
- Form 8833 – Treaty-Based Return Position Disclosure
- Form 5471 – Information Return of US Persons With Respect to Certain Foreign Corporation
- Form 8865 – Return of US Persons with Respect to Certain Foreign Partnerships
- Form 8621 – Information Return by a Shareholder of a Passive Foreign Investment Company (PFIC)
- Form 3520/3520A – Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts/Annual Information Return of Foreign Trust with a US Owner
What Can I Do to Prepare for Streamlined Filing?
Because it requires filing multiple years of tax returns, preparing to file under the Streamlined Procedures can feel like a daunting task. But being prepared will help make the process as painless as possible.
To prepare, we recommend:
- Selecting an experienced expat tax accountant to save time, ensure accuracy, and avoid the risk of an audit
- Organizing your tax documents (for the past three years)
- Gathering statements from your foreign financial accounts (for the past six years)
You can review all the steps to prepare for Streamlined Filing here.
What If I Need to Amend a Streamlined Return?
If you need to amend a Streamlined return, you’ll have to act quickly. Once the IRS has begun reviewing your submission, you cannot amend it.
The process for amending a Streamlined tax return requires you to:
- Prepare corrected returns for all the years associated with the original submission.
- Submit an amended Form 14653 to explain the errors in the original submission.
- Write in red ink on the top of the first page: “Amended Streamlined Foreign Offshore.”
- Mail the amended return and any additional tax payments due to the IRS.
Will I Have to Pay Penalties?
No, the penalties are waived for Streamlined filers.
The great news about the Streamlined Filing Procedures is that the IRS waives all late-filing and late-payment penalties for those who qualify and submit their completed Streamlined filing.
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 for the Streamlined Filing Procedures?
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 to address previous failures to comply with US tax return obligations:
- IRS-Criminal Investigation Voluntary Disclosure Program
- Delinquent FBAR submission procedures
- Delinquent international information return submission procedures
If you don’t believe you qualify for the Streamlined Filing Compliance Procedures, book a consultation with an experienced expat accountant to have them recommend the best course of action.
Ready to Catch Up on your US Expat 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.