US Citizens Living Abroad can Become Compliant with Their US Tax Obligations Relatively Unscathed by Using the Streamlined Filing Compliance Procedure

Posted on July 28th, 2023 in Cross-border Tax

The Internal Revenue Service (IRS) has acknowledged that there are many US taxpayers outside of the USA who are non-compliant with their US tax filings including Reports of Foreign Bank and Financial Accounts (FBARs) and, as such, are offering special procedures for US taxpayers to become compliant.

The Streamlined Filing Compliance Procedure allows delinquent U.S. taxpayers the opportunity to come forward and avoids possible IRS enforcement action and the large penalties associated with not filing.

The streamlined filing compliance procedures are available to taxpayers certifying 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. The streamlined procedures are designed to provide to taxpayers in such situations with:

a streamlined procedure for filing amended or delinquent returns, and
terms for resolving their tax and penalty procedure for filing amended or delinquent returns, and
terms for resolving their tax and penalty obligations.

The streamlined procedures are available to both US individual taxpayers residing outside the USA and US individual taxpayers residing in the USA. For the purposes of this article, we will focus on US taxpayer’s living outside of the USA.

For purposes of the streamlined procedures, US citizens and lawful permanent residents, i.e., green card holders, are nonresidents if, in one or more of the most recent three years for which the US tax return due date has passed, they (1) did not have an abode in the United States and (2) were physically outside the United States for at least 330 full days.

US taxpayers eligible to use the Streamlined Foreign Offshore Procedures must (1) for each of the most recent 3 years for which the U.S. tax return due date has passed, file delinquent or amended tax returns, together with all required information returns (e.g., Forms 3520, 5471, and 8938) and (2) for each of the most recent 6 years for which the FBAR due date has passed, file any delinquent FBARs (FinCEN Form 114, previously Form TD F 90-22.1). The full amount of the tax and interest due in connection with these filings must be remitted with the delinquent or amended returns.

A US taxpayer filing under the streamlined procedure must certify that:

they are eligible for the Streamlined Foreign Offshore Procedures;
all required FBARs have now been filed; and
failure to file tax returns, report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct.

A taxpayer who is eligible to use these Streamlined Foreign Offshore Procedures and who complies with all of the instructions outlined by the IRS will not be subject to failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties, or FBAR penalties.

If returns are properly filed under these procedures and are subsequently selected for audit under existing audit selection processes, the taxpayer will not be subject to failure-to-file and failure-to-pay penalties or accuracy-related penalties with respect to amounts reported on those returns, or to information return penalties or FBAR penalties, unless the examination results in a determination that the original tax noncompliance was fraudulent and/or that the FBAR violation was willful. As with any US tax return filed in the normal course, if the IRS determines an additional tax deficiency for a return submitted under these procedures, the IRS may assert applicable additions to tax and penalties relating to that additional deficiency.

If you need assistance in becoming compliant in the USA, we are well-seasoned in this matter and our cross border professionals can help you.