The IRS Streamlined Filing Compliance Procedures can provide a lifeline for US taxpayers who have fallen behind on their tax and FBAR obligations. However, not everyone qualifies. To use either the Streamlined Foreign Offshore Procedures (SFOP) or Streamlined Domestic Offshore Procedures (SDOP), you must meet specific eligibility requirements. Let’s break them down to help you understand whether you qualify.

The Importance of Non-Wilfulness

The cornerstone of eligibility for both SFOP and SDOP is non-wilfulness. This means your failure to comply must not have been due to deliberate neglect or intentional avoidance. Instead, it must have arisen from negligence, inadvertence, or a good faith misunderstanding of your filing obligations.

How to Prove Non-Willfulness

• You must submit a statement of non-wilfulness, detailing the reasons for your failure to file. This statement should explain the circumstances that led to your non-compliance.
• Supporting documentation, such as proof of residency or correspondence showing confusion about filing requirements, can strengthen your case.

SFOP Eligibility Criteria

The Streamlined Foreign Offshore Procedures are designed for taxpayers living outside the United States. To qualify, you must meet the following conditions:

1. Residency Requirement: You must have been physically present outside the US for at least 330 full days in one of the most recent three years.
2. Non-Willful Conduct: You must certify that your failure to file was non-willful.
3. No Ongoing IRS Examination: You must not be under IRS audit or criminal investigation.

SDOP Eligibility Criteria

The Streamlined Domestic Offshore Procedures are for taxpayers who reside primarily within the United States. Eligibility criteria include:

1. Residency Requirement: You do not meet the foreign residency test required for SFOP.
2. Non-Willful Conduct: Like SFOP, you must certify non-willfulness.
3. No Ongoing IRS Examination: If the IRS has already begun an investigation, you are ineligible.
4. Penalty Acknowledgement: You must be willing to pay a 5% miscellaneous offshore penalty on the highest aggregate balance of unreported foreign financial assets.

Exclusions: Who Does Not Qualify?

• Taxpayers Under Examination: If the IRS has already initiated an examination or audit, you cannot participate in either streamlined procedure.
• Willful Non-Compliance: If you knew of your filing requirements but deliberately chose not to comply, you are ineligible.
• Previous Voluntary Disclosure: If you have already made a voluntary disclosure under the IRS’s other programs, you generally cannot switch to the streamlined procedures.

Why Eligibility Matters

If you attempt to use streamlined procedures without meeting the criteria, the IRS may reject your submission and subject you to full penalties or even criminal charges. Ensuring eligibility before proceeding is essential.

Final Thoughts

Meeting the eligibility requirements for the IRS Streamlined Procedures is crucial to avoiding penalties and restoring compliance. The key factor is non-wilfulness – your failure to file must be unintentional. If you’re unsure about your eligibility, consulting a tax professional familiar with expatriate compliance can provide clarity and guidance.

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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