The Streamlined Filing Compliance Procedures (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.

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

1. Meet a non-residency test for one of the three streamlined years. 
   1. Have filed or unfiled returns for the past three years for which the due date has passed.
   1. 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.
   1. 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. IRS has the final say regarding eligibility for the Streamlined Process.  In this regard, see my earlier blog post on Dawww.the-tax-wars.net  “Will-O-The Wisp Willfulness in the Streamlined Process “(9/1/14)).

The Streamlined Process is beneficial to taxpayers because it:

• Allows one to come into compliance by filing no more than three years of returns and six years of FBARS instead of at least six years of returns required for delinquent returns filed outside of the Streamlined Program.
  • Requires a showing that the taxpayer’s non-compliant conduct was non-willful a lower standard of care than “reasonable cause” required for having tax penalties waived or abated outside of the Streamlined program. See my earlier blog post Streamlined Filing vs. Regular Filing with Reasonable Cause Statement (12/22/2022). https://the-tax-wars.net/2022/12/22/streamlined-filing-verses-regular-filing-with-reasonable-cause-statement/
  • Avoids the harsh penalty regime, inappropriate for those not tax criminals or willful violators, and, who, in all fairness should not be subject to the maximum penalties for willful violations. Instead, the Streamlined Process permits U.S. persons qualifying as non-residents to come into compliance without penalty and those not meeting the non-residency test who have filed returns to do so 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. 
  • Removes the cloud of fear hanging over one’s head about discovery of the non-compliance.
  • Brings one into compliance without identifying him or her as a tax-violator and without disclosing to the public that you have entered the program.

Streamlined filers will not initially know if IRS has accepted them into the Streamlined Program. While an IRS audit of your returns will not be automatic, returns may be selected for audit under normal IRS audit guidelines and IRS may determine that 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 FBAR.  For a fuller discussion of the impact of limitations periods, read my blog post on www.the-tax-wars.net  “Statutes of Limitations and Streamlined Filings or File Forward Strategies” (8/10/15).

A Streamlined filer will need to employ both a tax preparer experienced in expat tax matters and Streamlined filings as well as a tax attorney experienced in Streamlined filings.

The return preparer will prepare the delinquent or amended returns, FBARS and IRS Form 14653 or 14654 as the filing requires.

The specific areas of representation for the tax attorney will encompass:

1. Determine the best course of action that will resolve the offshore tax issues.
2.  Determine eligibility for the Streamlined Process with the understanding that IRS has the final say on eligibility and there is no guarantee of it agreeing with my determination.
3. Draft the required non-willfulness statement (an affidavit signed under penalties of perjury) required under the Streamlined Process.
4. Review the returns, related foreign forms and FBARs prepared by your return preparer to make sure nothing in the returns is inconsistent with the non-willful certification.
5. Prepare a cover letter for mailing the Streamlined package to IRS at the special Streamlined address in Austin Texas and mail the package or prepare instructions for the taxpayer to mail the package.

It is essential to provide only truthful and accurate information to the tax attorney and IRS for even erroneous information unintentionally supplied could cause rejection from the program and bring serious adverse consequences.  The streamlined non-willful affidavit must be accurate, truthful and completely transparent, that is, stating all relevant facts, both the helpful and unhelpful.

No one can predict when and if the IRS will terminate the Streamlined Program. Therefore, taxpayers who are presently out of compliance regarding foreign income or reporting should promptly seek professional assistance to determine eligibility for filing under the Streamlined Process.