Everything You Need to Know About Streamlined Filing

Many expats live abroad for years without realizing they must file US tax returns yearly. 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.

Expats pick up their lives and migrate worldwide, sometimes 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 be 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 three countries that taxes its citizens on their worldwide income regardless of their location (Eritrea and North Korea are the other countries, for all you trivia buffs out there). It is not uncommon to come across expats who have not submitted tax returns in years because they were unaware of the need to do so or were told by their US-based accountant that they didn’t have to file.

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.

The IRS created this amnesty program in 2012 to incentivize taxpayers to become tax compliant voluntarily; so far, it has been a massive success! It has helped over 65,000 US taxpayers become compliant. 

What Are the Streamlined Filing Compliance Procedures?

The Streamlined Filing Procedures was created in 2012 to encourage US expats to get caught up on their delinquent taxes. The program was initially considered an alternative to the IRS’s other disclosure programs, for example, the now-closed Offshore Voluntary Disclosure Program (OVDP).

The Streamlined Filing Compliance Procedures are created to help low-risk individuals become tax compliant. The process is designed to be a less burdensome way to get caught up than the OVDP. Streamlined filing requires only a certain number of tax returns to be filed, which can cut down on the time, effort, and expense needed to catch up.

The program was stricter in its original incarnation, 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 to help more taxpayers catch up on taxes.

Can Expats Use the Streamlined Filing Procedure?

There are two versions of the Streamlined Filing Compliance Procedures, a domestic program for individuals who live in the US and a foreign program for individuals living abroad. US expats can use the Streamlined Foreign Offshore Procedures to become tax compliant while living abroad.

The program is designed specifically for Americans outside the US to help them catch up on their missed taxes and requires that the individual be physically present outside the United States for 330 days in one or more of the past 3 years.

Who Qualifies For the Streamlined Filing Procedures?

Currently, to qualify for the Streamlined Offshore Filing program, you must:

• Show that the reason for not filing in the past was “Non-Willful,” If you failed to comply with your US tax obligations, you must state under penalty of perjury that it was not intentional and that your noncompliance resulted from a mistake or a lack of understanding of your obligations. 
• 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 
• Have a Social Security Number or Taxpayer Identification Number (ITIN). However, if you do not qualify for a Social Security Number and do not have an ITIN, you may apply for an ITIN with your tax documents when filing under the Streamlined program. 

To prove your eligibility for the Streamlined Program, you must include a signed statement (Form 14653) certifying this fact as part of the package you submit to the IRS.

What is the IRS standard for Willfulness? 

The IRS uses a standard of willfulness in determining whether an individual qualifies for the Streamlined Filing Compliance Procedure. 

According to this standard, noncompliance is considered non-willful if it is due to negligence, inadvertence, or mistake or if it results from a good faith misunderstanding of the requirements of the law. 

The IRS applies this standard broadly so that most individuals can qualify for streamlined filing procedures even if they have not filed tax returns in the past. 

For example, some people are “Accidental Americans” who were born in the United States but left very young and have no ties with the country. The IRS considers their noncompliance unintentional because they were unaware of their US tax obligations while living overseas. 

What Do I Need to Do to Catch Up on Taxes?

Unlike its older cousin, the OVDP (Offshore Voluntary Disclosure Program), for which you were required to submit eight years of returns and an array of additional forms, the Streamlined Filing Compliance Procedures are, well, streamlined.

To complete your Streamlined Filing, you will need to submit the following:

• The most recent three (3) years of late 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 US Person Residing Outside of the US” 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 must 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 the following:

• 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 the following:
  • 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 Concerning Certain Foreign Corporation
  • Form 8865 – Return of US Persons concerning 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?

A streamlined filing requires filing multiple years of tax returns and additional forms you may never have heard of, so preparing to file under the Streamlined Procedures can feel daunting. A bit of preparation in advance can help make the whole process as painless as possible.

To prepare, we recommend the following:

1. Select an experienced expat tax accountant to save time, ensure accuracy, and avoid the risk of an audit
2. Organize your tax documents (for the past three years), including sources of income from employment, investments, dividends, etc., expenses such as housing, utilities, child care, etc., and any business-related expenses if you are self-employed.   
3. Gather statements from your foreign financial accounts (for the past six years), which would likely be your monthly bank and brokerage statements, so you can determine the maximum account value for each account for each year. 

What If I Need to Amend a Streamlined Return?

You’ll have to act quickly if you need to amend a Streamlined return. Once the IRS has begun reviewing your submission, you cannot amend it.

The process for amending a Streamlined tax return requires you to:

1. Prepare corrected returns for all the years associated with the original submission.
2. Submit an amended Form 14653 to explain the errors in the original submission.
3. Write in red ink on the top of the first page: “Amended Streamlined Foreign Offshore.”
4. Mail the amended return and any additional tax payments due to the IRS.

Will I Have to Pay Penalties?

No. 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. It is critical to know that you must submit your Streamlined Filing before the IRS contacts you about not filing. If you have been contacted by the IRS or they have begun to investigate you, then the Streamlined rules will not apply. 

First Time Penalty Abatement Program 

The First Time Penalty Abatement Program allows US citizens abroad who received a notice from the IRS to file for unfiled/missed tax returns without fees. 

Even if you haven’t paid all of your taxes, you can still request First Time Abate to have part of the penalty removed. However, the Failure to Pay Penalty will continue to increase until you pay the tax in full. 

What If I Don’t Qualify for the Streamlined Filing Procedures?

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

IRS-Criminal Investigation Voluntary Disclosure Program

The IRS-CI Voluntary Disclosure Program is a program designed to encourage taxpayers who have not complied with their tax obligations to come forward and resolve their tax issues. The IRS is seeking information on taxpayers with unreported offshore accounts, assets, and income that may be underreporting their US income and paying less than what they owe in taxes.

The program is for taxpayers who have been identified by the IRS as US person who has failed to report foreign assets, engage in international business transactions, or have filed FBARs but did not file required foreign financial account reports (FinCEN Form 114). The program provides an opportunity for taxpayers to resolve their previously undisclosed foreign financial accounts, income, and other reportable items before the IRS begins an audit.

Ready to Catch Up on your US Expat Taxes with Streamlined Filing Procedures? We Are Here to Help!

If you’re unsure if you qualify for the Streamlined Filing Compliance Procedures, book a consultation with one of our experienced expat accountants to have them recommend the best course of action for your specific situation, you can also click below to get a consultation with one of our expat tax experts. Contact us, and one of our customer champions will be happy to help.