What are the IRS streamlined filing compliance procedures (known more commonly as the “streamlined procedures”), and when should a US taxpayer consider the IRS streamlined procedures to come into compliance with IRS reporting requirements?

US taxpayers have been required to disclose offshore accounts and foreign financial activities to the IRS and the Financial Crimes Enforcement Network or FinCEN for many years. For example, a US taxpayer with signatory authority over offshore financial accounts is required to complete and submit the Report of Foreign Bank and Financial Accounts or FBAR, FinCEN Form 114 if the aggregated value of all of their offshore accounts exceeds $10,000 at any point (even for an hour) during a given tax year. If the aggregated total exceeds $10,000, the taxpayer must list every non-US financial account as well as information such as account numbers and balance information and submit this data through FinCEN’s BSA E-Filing system by April 15 following the calendar year reported. The FBAR is not part of your tax return.

US taxpayers are required to complete IRS Form 8938 - Statement of Specified Foreign Financial Assets to report income associated with foreign bank and investment accounts when the taxpayer’s aggregated assets exceed “the appropriate reporting threshold” within a given tax year.

What happens if a US taxpayer becomes aware of offshore income or foreign financial accounts that should have been reported to the IRS? How would a US taxpayer know if or when to consider the IRS streamlined procedures?

The IRS Streamlined Compliance Procedures were designed to help non-willful US taxpayers update tax filings associated with unreported foreign income or financial accounts, assets or investments. It is important to note that a streamlined filing may also disclose unreported US income.

The IRS defines non-willful conduct as “conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.”

There are two different streamlined procedure programs: The Streamlined Foreign Offshore Procedures (for non-US residents) and the Streamlined Domestic Offshore Procedures (for US residents).

Individual US taxpayers and estates of individual US taxpayers are eligible to consider this program if the IRS has not initiated an audit or “civil examination of taxpayer’s returns for any taxable year.”

Generally speaking, US taxpayers may amend up to 3 years of tax returns. The taxpayer must provide (file) both the original and amended tax returns, including six years of updated informational forms such as the FBAR (FinCEN Form 114) and Form 8938. The taxpayer will be required to pay all related taxes and penalties when submitting the streamlined filing.

A US taxpayer should consider the IRS streamlined procedures when they have filed incomplete, inaccurate, or late returns, as well as those who failed to file a US tax return altogether. The US taxpayer must be ready to assert that the failure to report all income and accounts and associated informational returns, such as the FBAR, were the result of non-willful conduct. The IRS streamlined procedures bring a US taxpayer back into compliance with the IRS while avoiding a substantial number of penalties and fines associated with the failure to file or pay taxes owed.

It is important to speak with a US tax attorney who handles domestic and international tax matters. A tax attorney may provide the protections of the “attorney-client privilege” as you discuss your unique circumstances, concerns and questions. Your tax attorney should help you to determine which IRS programs you may be eligible for and best possible options to come into compliance with the IRS based on your unique circumstances.