Streamlined Procedures – What Is It and Who Does It Assist?
Streamlined Procedures may provide non-tax-compliant US citizens a remedy when the conduct was non-willful. The Streamline includes procedures and terms for filing amended or delinquent returns and for resolving open tax and penalty obligations. Part of the process includes filing three years of income tax returns with the proper amendments and attachments as well as filing six years of Foreign Bank Account Reports known as FBARs (Form FinCen 114).
The Streamline procedure may also include reporting and filing Form 8938 “Statement of Specified Foreign Financial Assets,” Form 5471 “Information Return of U.S Persons With Respect to Certain Foreign Corporations,” and, Form 3520 “Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts,” among other international tax compliance forms.
A Common Mistake
Commonly, taxpayers can run afoul of international reporting and compliance rules with the failure to report one or more of the various required forms.
For example, if a taxpayer did not file a Form 5471, used to report ownership in a foreign corporation where the shares of that foreign corporation held are worth $100,000, it is likely the taxpayer did not properly file Form 8938, used to report a foreign financial asset worth $75,000 or more. It is also likely the taxpayer failed to report the Global Intangible Low Taxed Income (GILTI) tax on that foreign corporation’s net assets.
Who Is Eligible to Use a Streamline?
Taxpayers who non-willfully failed to file an international tax return such as a Form 5471, Form 3520, Form 8938, and/or GILTI related forms, among others, fall into two main categories when eligible to enter the Streamline procedure:
- U.S. taxpayers residing in the country; or,
- U.S. taxpayers residing outside of the country
Taxpayers residing inside the country must prepare and file using the Streamlined Domestic Offshore Procedures while taxpayers residing outside the country must prepare and file using the Streamlined Foreign Offshore Procedures. While similar, the procedures and potential penalties differ. Specifically, there is no penalty for those who reside outside the US and file under the Streamlined Foreign Offshore Procedures, while for those living in the US who file using the Streamlined Domestic Offshore Procedures, the IRS may assess a penalty of 5% of the year with the highest aggregate balance of the unreported foreign financial assets on December 31.
How does the 5% Penalty Work?
Assume a taxpayer did not report an FBAR with a foreign bank account that had $100,000 value during a year, and in that same year, the taxpayer did not report stock ownership in a foreign corporation worth $100,000, and if that year represented the highest aggregate balance of the accounts on December 31st, then, a 5% penalty of the aggregate $200,000 would be applied if the taxpayer was a U.S. resident completing the Streamlined Domestic Offshore Procedures.
Other Eligibility Requirements:
- Taxpayer must certify their issue is not willful. That means that the conduct was due to reasons such as, but not limited to, mistake or a good faith misunderstanding.
- The IRS has not initiated civil or criminal investigations.
- Taxpayers who have previously filed delinquent or amended returns to attempt to resolve reporting obligations through the Offshore Voluntary Disclosure Program (OVDP) may still be eligible to use the Streamline procedure; however, they must pay any penalty assessments from those attempts.
- Taxpayers must have a valid Social Security Number (SSN) or a valid Individual Taxpayer Identification Number (ITIN).
Concerned about Criminal Investigation or High Penalties?
Fortunately, there are options for individual taxpayers whose failure to report appropriate information was willful and have concerns regarding criminal liability or high financial penalties. Currently, there are two options if you are concerned about an IRS criminal investigation or high financial penalties:
- IRS Criminal Investigation Voluntary Disclosure Practice; or,
- Streamlined Procedure
Choosing the proper option may be difficult and you should consult an experienced tax attorney who will be able to assist you with that decision.
The Streamline procedures can be difficult to properly prepare, compile and report. RLS Law and its qualified attorneys are available to assist in completing the proper Streamline procedure as well as with other reporting or filing issues and delinquencies. Please call RJS Law for a free consultation and assessment at 619-595-1655. You may also contact us via the web at www.RJSLawFirm.com. We look forward to hearing from you.
Published by Andrea Cisneros Valdez, Esq. and Andrew Rice, Law Clerk