Streamlined filing compliance procedures

personal income tax
  • by admin
  • January 17, 2021

What are Streamlined filing compliance procedures? Who can file Streamlined filing compliance procedures? In this post, we are going to discuss the detail of Streamlined filing compliance procedures, who, why, and what need to file. Also what other alternatives do you have.

 

The streamlined filing procedures were initiated on September 1, 2012, and Since then, this has been expanded and modified to include a broader group of U.S. taxpayers.

Major changes to the streamlined procedures include:

  • Providing eligibility to U.S. taxpayers who are living in the United States
  • Removal of the $1,500 tax threshold, and
  • Removal of the risk assessment process associated with the streamlined filing compliance procedure announced in 2012.

The modified streamlined filing compliance procedures are available only for individual taxpayers, including estates of individual taxpayers. The procedures are available 1. U.S. individual taxpayers living outside the United States and 2. U.S. individual taxpayers living in the United States.

The IRS made provisions in cases where the taxpayer can prove that the failure to report the necessary foreign financial assets and pay the tax when due was not willful conduct on the taxpayer’s part.  The streamlined filing compliance procedures exist to remedy such cases that involve filing an amended or delinquent return, resolving tax and penalties procedures for filing such returns, and resolving the penalties that may emanate from filing amended or delinquent returns.

To be eligible for the streamlined filing compliance procedures, you have to be an individual taxpayer, and the procedures can apply to the estates of such individuals. The procedures can apply to both US-based individual taxpayers and US individual taxpayers that do not reside in the US. There are requirements the IRS has laid out to meet before a taxpayer can apply the streamlined filing compliance procedures, which includes:

1) The taxpayer was non-willful: A taxpayer will be required to certify in line with specific instructions that the failure to report such assets and income was not a result of non-willful conduct. Non-willful conduct is an activity that is not a result of negligence, lack of attention, mistake, or conducts that was in good faith lack of understanding of tax laws.

2) There has not been an initiation of an IRS Civil Examination: A taxpayer undergoing an IRS audit cannot submit to the program. A taxpayer under criminal investigation is also not eligible for the program.

3) The taxpayer must resolve previously filed amended and delinquent returns and pay assessed penalties to be eligible.

4) Taxpayers need to have a valid tax identification number: to submit to the program, a taxpayer must have a tax identification number. A social security number will suffice if the taxpayer is a US citizen, resident, or US person. The submission can be with a completed ITIN application.

The procedures were created to bring individuals with foreign assets and income that can prove non-willful conduct into compliance with US tax laws. There are two parts involved, the streamlined domestic Offshore procedures and the streamlined foreign offshore procedures. For the domestic procedures, the taxpayer has to meet the general procedures outlined above as well as be a US resident, which involves not meeting the no residency requirements set forth by the IRS. The taxpayer is also required to have filed previous returns, and the submission to the procedure is not an initial return. The streamlined foreign offshore procedures are for non-US residents. A US citizen and green card holder must have lived 330 days in a foreign country within 12 months. Non-US citizens and residents do not have to meet the 330 days test but have to meet the substantial presence test.

The taxpayer once files under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures, taxpayer may not file OVDP. The taxpayer who files an OVDP voluntary disclosure letter on or after July 1, 2014, will not be eligible to file in the streamlined procedures.

Eligibility for the Streamlined Foreign Offshore Procedures (SFOP)

  1. meet the applicable non-residency requirement described below and
  2. have failed to report the income from a foreign financial asset and pay tax as required by U.S. law, and
  3. may have failed to file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) with respect to a foreign financial account, and
  4. such failures resulted from non-willful conduct.

A taxpayer who is eligible to use these SFOP and who complies with the instructions mentioned below, will not be subject to failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties, or FBAR penalties.

  • File 3 years of delinquent Federal Tax Returns
  • Report 6 years of FBARS
  • Form 14653 to certify tax delinquency was non-willful

Disclaimer: Information in the blog/post/article has been presented for a broad and simple understanding. This is not legal advice. RKB Accounting & Tax Services does not accept any liability for its application in any real situations. You need to contact your accountant or us for further information.

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