To make things easier for taxpayers, the IRS announced new Streamlined Foreign Offshore Procedures on June 18, 2014. This 2014 program offers many benefits including reduced offshore penalties (even 0% in some cases). This article will help you to determine if you are eligible, and provides an overview of necessary streamlined offshore OVDP procedures.
• Must be individual taxpayers, including estates of individual taxpayers.
• If failed to report income from foreign financial assets, pay tax, or failed to file tax returns, including FBARs, the taxpayer must certify that their failures resulted from non-willful conduct.
• Taxpayers under a criminal investigation or civil examination are ineligible for streamlined reporting, irrespective of whether the case is related to undisclosed foreign assets.
• Taxpayers who made “Quiet disclosures” may still use the streamlined procedures but any previously assessed penalties will not be abated.
• All returns submitted under the streamlined procedures should have a Taxpayer Identification Number (TIN).
• Not available for those who have submitted their OVDP “intake letter” and “attachment” after July 1, 2014. This offers great advantage to those who have submitted their pre-clearance already. So it is better to not submit an OVDP intake letter, if you want to become eligible for the Streamlined Foreign Offshore Procedure. Otherwise you will be entitled to Standard OVDP where opt-out will be only option for you to reduce penalties. If you have submitted a voluntary disclosure before July 1, 2014, you may qualify for favorable “transitional treatment” under OVDP.
• Non-residency requirement applicable to U.S. citizens or Green Card Holders: In any one or more of the three recent years for which the tax return deadline has passed, the individual did not have a US abode and he or she was physically present outside the U.S. for minimum 330 days. IRS Publication 54 gives more details on the meaning of “abode”.
• Non-residency requirement applicable to Non-U.S. citizens: If, in any one or more of the last 3 years for which the U.S. tax return due date (or a properly extended due date) has passed, the individual did not meet the “substantial presence test”. For more details about this test, see IRS Publication 519.
Instructions for the Streamlined OVDP Procedures
1. For every most recent three years for which the US tax return due date has passed:
• If tax return has not been filed previously, submit an accurate delinquent tax return together with the required information returns. Normally, information returns would be submitted separately had the taxpayer filed the original return on time.
• If U.S. tax returns have been filed previously, submit an accurate amended tax return using Form 1040X, along with the required information returns (Forms 3520, 5471, and 8938).
2. At the top of the delinquent/amended tax return first page as well as in the information return, mention “Streamlined Foreign Offshore” clearly and in RED. This is very important to ensure the returns are processed under these special procedures.
Certification of non-willful conduct
Willfulness requires more than checking the incorrect or no box on a Schedule B. Willfulness requires more than the failure to file FBAR. It is better to discuss about whether or not you were willful with an OVDP law firm.
Filing missed FBARs
File delinquent FBARs electronically for most recent 6 years for which the FBAR deadline has passed at the FinCen website. Include a statement explaining that it is sent as part of Streamlined Filing Compliance Procedures.