The Streamlined Filing Compliance Procedures (Streamlined process or filing)represent a very attractive process by which certain non-compliant taxpayers can come into compliance without penalty (for those living outside of the U.S. who meet a non-residency test) or with a 5 percent miscellaneous offshore penalty for those residing inside the U.S. (that is, who fail to meet the non-residency test).

The Streamlined Process is a special program under which IRS provides a relatively simpler route by which U.S. taxpayers can potentially resolve past tax oversights and become compliant with U.S. tax reporting rules regarding income, foreign bank accounts or other required foreign reporting forms.  Basically, the returns and foreign forms are filed with a special Streamlined unit of the IRS who review the package for adequacy on its face and if found adequate are put through for normal return processing with penalty relief.


Eligibility for Streamlined Filing

The program is aimed at taxpayers who are not tax criminals and who meet the following eligibility requirements.

  1. Meet or fail to meet a non-residency test for one of the three streamlined years.
  2. Have filed returns for the past three years for which the due date has passed. Those qualifying as non-residents can file delinquent returns under the program.
  3. Have failed to report the income from a foreign financial account or other foreign source income as required by U.S. tax law and / or failed to file correct FBARs or other foreign reporting forms.
  4. Certify that the failure to report all income, pay all tax and submit all required information returns was due to non-willful conduct. The courts and IRS have defined willfulness as “the intentional violation of a known legal duty.”  That phrase is easier to recite than to clarify and IRS has been coy about how aggressively it will review taxpayer certifications of non-willfulness.  The test turns on both factual analysis and legal conclusions from those facts. Recently, several courts have held that willfulness includes reckless disregard of the law and IRS rules and return instructions referred to on Form 1040, Schedule B. With regard to eligibility for the Streamlined Process, IRS has the final say.  For a fuller discussion of willfulness see my blog post on  “Will-O-The Wisp Willfulness in the Streamlined Process “(9/1/14)).  This affidavit is the tricky-as-a-maze part of the Streamlined process that requires great care, thought and legal skills to navigate without subjecting the filer to enhanced risks of criminal charges.

Attractiveness of Streamlined Process

The program beneficial for most who qualify because the Streamlined Process:

  • Allows one to come into compliance by filing only three years of returns and six years of FBARS instead of six years of returns required under the existing Voluntary Disclosure Procedures (VDP).
  • Avoids the VDP harsher penalty regime which would be inappropriate for those who are not tax criminals or reckless or willful violators and in all fairness should not be subject to the maximum FBAR penalties or, for willful violations or harsh penalties for failure to file Form 3520. Instead, the Streamlined Process for U.S. persons allows you to come into compliance by paying a reduced miscellaneous offshore penalty of 5 percent of the highest balance of noncompliant foreign financial assets (required to be reported in an FBAR or on Form 8938 or reported but income not reported) during a six year look back period but no other penalties such as the accuracy-related penalty (can be 20%) on any increased income tax liability or 3520 penalty (can be 25% of value of unreported trust assets). Those qualifying as living outside of the U.S. pay no penalty at all.
  • Removes the cloud of fear hanging over one’s head about discovery of the non-compliance and possible passport denial or revocation.
  • Brings one into compliance without identifying him or her as a tax-violator and without disclosing to the public that he or she has entered the program.


Uncertainty Associated with Streamlined Filings

Unlike the VDP, one does not initially know if IRS has accepted him or her into the Streamlined Process. While an IRS audit of Streamlined returns will not be automatic, returns may be selected for audit under normal IRS audit guidelines and IRS may determine that one’s conduct, in its eyes, was not non-willful.  In that case, IRS could go back further than three years and could assert an FBAR penalty at the conclusion of the audit process.  The IRS would have to act within the period allowed under law for making income tax assessments, normally three years unless large amounts of income (more than 25% of all income reported) are found to have not been reported in your returns.  This limitations period on making assessments would start to run from the filing date of your original or delinquent returns. These limitations periods, however, do not apply to a year for which IRS successfully proves that fraud was committed in filing the return.  The limitations period for IRS assessing the FBAR civil penalty is six years from the due date of the particular FBAR.  For a fuller discussion of the impact of limitations periods, read my blog post on  “Statutes of Limitations and Streamlined Filings or File Forward Strategies” (8/10/15).


Linchpin of Safely Filing under Streamlined Process

Streamlined filings are safe provided the following rules are strictly observed:

  1. Provide only truthful and accurate information in the required Non-willful statement or affidavit.
  2. Make the affidavit (i.e., it is filed under penalties of perjury) completely transparent, including facts all relevant known facts, even those that may suggest willfulness, with an explanation, if required.
  3. Distinguish between facts that are known from documents and memory or recollections of past events.
  4. Have an experienced tax attorney prepare the non-willful affidavit and make the decision whether conduct described is non-willful conduct.
  5. Remember that statements in the non-willful affidavit are legal admissions. Do not inadvertently and ignorantly admit to a chargeable crime or you may find yourself so charged.


Dangerous Streamlined Filing

Whether a taxpayer’s conduct is non-willful requires a factual and legal analysis to determine where the taxpayer’s conduct falls on an imaginary ladder of culpability.  The ladder shows the most culpable conduct at the top rung and the least culpable conduct at the bottom rungs.  From the top down the ladder appears:


  • Criminal conduct.
  • Civilly willful conduct.
  • Reckless disregard conduct.
  • Non-willful conduct.
  • Grossly negligent conduct.
  • Negligence
  • Ignorance of the law


A taxpayer will qualify for Streamlined filing relief if they are ignorant of the law, negligent, grossly negligent or non-willful.  Only an experienced tax attorney has the training and experience to distinguish between the categories of conduct listed above. Often a taxpayer’s conduct will fall in the cracks between categories of grossly negligent, non-willful, reckless or willful.  Only an experienced tax lawyer will know the questions to ask the client to root out all of the relevant facts necessary to make a proper non-willful decision.

I’ve had been told that there are CPAs who are preparing non-willful affidavits for clients making Streamlined filings.  In doing so, they are subjecting their clients to unknowing risks of being charged with making a false Streamlined claim of non-willfulness or even worse of unwittingly admitting to a crime or committing perjury.  They are also inviting malpractice claims because practicing out of license (unlawful practice of law) is per se negligent.

CPA Indicted for foolhardy Streamlined Filing Caper

CPA Brian Nelson Booker prepared his own Streamlined filing.  He should have hired legal counsel.  He would certainly have been told that his conduct was willful and therefore he should not attempt a Streamlined filing.  A Voluntary Disclosure would have been more suitable for his situation.  The rueful facts of his indictment can be found in U.S. v. Brian Nelson Booker Case O: 19 Cr. 60152 (S.D. Fla.).


Lesson:  Tax criminal cannot sneak into a lower penalty regime through the Streamlined Process. IRS is on the watch for such people.   You cannot turn bad chop-meat into a wholesome meal. And, it is not always easy to determine if the chop-meat is bad.  A CPA will not know.  He or she may have the client sail off unaware of a hidden bomb aboard the Streamlined ship.  A bomb of willfulness, which, if triggered, will take both the client and CPA to the bottom.

Robert S. Steinberg, Esquire


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