What Is the Streamlined Foreign Offshore Procedure?

If you are a U.S. citizen or Green Card holder living abroad and you have failed to file U.S. tax returns, report foreign income, or disclose foreign financial accounts, you may be able to become compliant without certain penalties through the Streamlined Foreign Offshore Procedures.

The IRS created these procedures for taxpayers whose failure to comply with U.S. tax and reporting obligations was non-willful.

Who Is Eligible?

You may qualify for the Streamlined Foreign Offshore Procedures if you:

• Meet the applicable non-residency requirement, which generally requires being physically outside the United States for at least 330 full days during at least one of the applicable three years
• Failed to report foreign income, pay U.S. tax, or file required international information returns or FBARs
• Can certify that your failure to comply was non-willful
• Are not currently under an IRS civil examination for any tax year
• Are not under a criminal investigation by IRS Criminal Investigation

For these purposes, the IRS defines non-willful conduct as conduct resulting from negligence, inadvertence, mistake, or a good-faith misunderstanding of the requirements of U.S. tax law.

Therefore, the program is not limited only to taxpayers who were completely unaware of their U.S. tax obligations.

What Do You Need to File?

A Streamlined Foreign Offshore submission generally includes:

• Three years of delinquent or amended U.S. federal income tax returns for the most recent years for which the filing deadline has passed
• All applicable international information returns, such as Forms 8938, 3520, or 5471, when required
• Six years of delinquent FBARs for the most recent years for which the FBAR filing deadline has passed
• Form 14653, Certification by U.S. Person Residing Outside of the United States for Streamlined Foreign Offshore Procedures
• Payment of any U.S. tax and interest due

Depending on your situation, your U.S. tax returns may also include forms such as Form 2555 for the Foreign Earned Income Exclusion or Form 1116 for the Foreign Tax Credit.

The IRS requires “Streamlined Foreign Offshore” to be written in red at the top of the first page of each delinquent or amended tax return and each applicable information return.

FBARs are filed separately and electronically through the FinCEN BSA E-Filing System. When filing a late FBAR under the program, the taxpayer should indicate that it is being filed as part of the Streamlined Filing Compliance Procedures.

What Are the Benefits?

For taxpayers who qualify and properly complete the procedures, the IRS generally does not impose:

• Failure-to-file penalties
• Failure-to-pay penalties
• Accuracy-related penalties
• Certain international information return penalties
• FBAR penalties

This can provide substantial relief for taxpayers who have unintentionally fallen behind on their U.S. tax and reporting obligations.

However, you must still pay any U.S. tax due, along with applicable interest.

Why Does It Matter?

U.S. citizens and Green Card holders are generally subject to U.S. tax filing requirements even when they live permanently outside the United States.

Foreign financial accounts and certain foreign assets may also trigger additional reporting requirements, including the FBAR (FinCEN Form 114) and Form 8938.

Failure to comply with these requirements can result in significant penalties. The Streamlined Foreign Offshore Procedures provide eligible taxpayers whose noncompliance was non-willful with an opportunity to correct prior filings and become compliant under more favorable penalty terms.

Final Thoughts

The Streamlined Foreign Offshore Procedures can be an important option for U.S. taxpayers living abroad who have fallen behind on their U.S. tax filings or foreign account reporting.

However, determining whether your conduct was non-willful and preparing the required certification are important parts of the process. Each situation should be reviewed carefully before making a Streamlined submission.

At Nordfiscus, we have helped hundreds of clients address past U.S. tax filing and foreign account reporting obligations through the Streamlined Foreign Offshore Procedures. Contact us for confidential assistance with bringing your U.S. tax filings up to date.

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