If you are a US citizen or resident alien living abroad, you might find yourself out of compliance with your US tax obligations. Whether you were unaware of your filing requirements or missed deadlines, the IRS Streamlined Filing Compliance Procedures can help you catch up without facing significant penalties. Let’s break down what these procedures entail and how they can benefit you.
What Are the Streamlined Filing Compliance Procedures?
The IRS introduced the Streamlined Filing Compliance Procedures in 2012 to encourage US taxpayers to voluntarily resolve tax and FBAR (Foreign Bank Account Report) compliance issues. These procedures are specifically designed for individuals who failed to file required tax returns or FBARs but who can certify that their non-compliance was non-wilful.
Why Were These Procedures Introduced?
The IRS recognised that many taxpayers living abroad were unaware of their US tax obligations. To alleviate fears of harsh penalties, the Streamlined Procedures were created as a way to become compliant without the risk of criminal prosecution or excessive fines, provided the non-compliance was not intentional.
Two Key Variants: SFOP and SDOP
There are two main types of Streamlined Procedures:
- Streamlined Foreign Offshore Procedures (SFOP)
- Designed for US taxpayers living outside the United States.
- Requires filing the last 3 years of delinquent or amended tax returns and 6 years of FBARs.
- No penalties are imposed if eligibility criteria are met.
- Streamlined Domestic Offshore Procedures (SDOP)
- Applies to taxpayers living within the United States.
- Similar requirements as SFOP (3 years of tax returns and 6 years of FBARs).
- Imposes a 5% miscellaneous offshore penalty on the highest aggregate balance of unreported foreign financial assets.
Key Requirements for Both Procedures
- You must certify that your failure to file was non-wilful by submitting Form 14653 (SFOP) or Form 14654 (SDOP).
- All forms must be filed electronically or through paper submissions, depending on the specific requirements.
- Payment of any taxes and interest owed must accompany your submission.
How to Prove Non-Wilfulness
The IRS requires a written statement explaining why you did not previously file your tax returns or FBARs. This statement should clearly indicate that the non-compliance was unintentional, typically due to ignorance of filing requirements or personal circumstances that made compliance difficult.
Benefits of Using Streamlined Procedures
- Reduced or No Penalties: Unlike other IRS compliance programs, SFOP has no penalties, while SDOP imposes a relatively low 5% penalty.
- Peace of Mind: Avoids criminal prosecution if non-compliance is deemed non-willful.
- Restores Compliance: Helps you become fully compliant without risking excessive fines.
Final Thoughts
If you’ve fallen behind on your tax filings or FBAR reporting, the Streamlined Filing Compliance Procedures offer a valuable opportunity to become compliant without harsh penalties—especially if you can demonstrate non-wilfulness. Consulting a tax professional experienced with offshore compliance can help you determine your eligibility and complete the necessary forms accurately.
The information in this blog post is for general informational purposes only and does not constitute professional tax advice. We strongly recommend consulting a qualified tax professional before making any decisions. US Expat Tax Advisor is not liable for any actions taken based on this content.
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