If you are a U.S. citizen or resident living abroad and have years of unfiled tax returns, keep reading. But please be informed that the IRS is coming after you and all taxpayers overseas that have not filed their taxes in a timely manner. Unfortunately, the United States is one of the only two countries that taxes its nonresident citizens on their global income. The good news is the IRS presents an opportunity to come into compliance in a way that avoids possible IRS enforcement action and the penalties involved. The agency created a program called the Streamlined Foreign Offshore Procedures (FSOP) to get caught up, which is ideal for expats unaware of their filing requirements. Let us take a closer look at how advantageous the streamlined foreign offshore procedures can be for expats behind on their U.S. taxes.
What’s The IRS Foreign Streamlined Offshore?
The Streamlined Foreign Offshore Procedures (FSOP) is the IRS compliance program for non-U.S. residents and Accidental Americans. The main goal of the streamlined offshore program is to bring these foreign taxpayers into compliance. If you are one of these individuals who have unreported offshore accounts, you may be subject to a variety of IRS offshore penalties, which include FBAR penalties. Unlike domestic procedures, taxpayers will have a complete penalty waiver under the Foreign Streamlined Offshore program. In other words, taxpayers may not have as much tax liability or penalties as before.
What Are the Streamlined Filing Procedures?
The Foreign Streamlined Offshore was created back in 2012 to help U.S. taxpayers get caught up on delinquent expat taxes. Some restrictions made many expats ineligible back then, so the IRS lifted these restrictions in 2014, thus allowing more individuals (non-willful taxpayers) to take advantage of the program. Some of the things that changed include the following:
- Eligibility was extended to United States taxpayers residing in the U.S. Under the previous guidelines, expats who came back to the United States were ineligible.
- The requirement that the expat taxpayer has $1,500 or less of unpaid annual taxes was removed.
- The risk assessment process was also removed. Under the previous program, you had to be considered a low risk to qualify.
- The taxpayer was required to certify that past failures to comply were caused solely by non-willful conduct.
- FBAR penalties and penalties for filing late were removed for U.S. taxpayers overseas.
Overall, worries about excessive penalties disappeared. Also, to qualify for this program, it must be certain that the lack of filings was non-willful, which means you did not know you were supposed to file – a position many U.S. expats may find themselves in. You are required to sign a statement about your innocence. While this is an easy step for most, make sure you are honest about your statement.
Taxpayers that want to take advantage of the Streamlined Filing Procedures, should act as quickly as possible. The IRS can be forgiving toward taxpayers who come forward voluntarily. However, if they see your non-compliance prior to you doing something about it, they will not be that supportive. The IRS closing the Offshore Voluntary Disclosure Program is a clear sign that IRS may not be that patient in the future and the Streamlined Filing Procedures may also close at any time.
Steps To Filing The Streamlined Foreign Offshore Procedures
The following are the steps you need to take to file under this program:
- If you filed incorrect returns, you are required to submit amended returns for the last 3 years of U.S. tax returns. The same applies to taxpayers who failed to file their taxes in a timely manner.
- Make sure you write the words “Streamlined Foreign Offshore” at the top of the page and show that you are indeed filing under this program.
- Complete and sign the Certification by U.S. Person Residing Outside of the U.S. to certify that you are eligible for this program, that all FBAR filing has been completed, and also your failure to file your taxes was non-intentional in nature. The original signed statement is submitted with the first return, then copies of the statement are attached to each added tax return. Copies of the statement can’t be attached to FBARs. If you fail to submit this statement or your submission was incomplete, you won’t qualify for the benefits of the streamlined offshore program.
- Submit all payments due, and make sure you write your tax ID number. If you don’t have a Social Security number, submit a taxpayer Identification Number (ITIN) application.
What About The Foreign Bank Account Report?
Usually, expats that are behind on their taxes are also behind on FBAR. Thus, the FBAR must be filed as well when the foreign bank account reaches $10,000 or more. FBAR has been required for a while now and the IRS is serious about this requirement. In other words, the IRS will go after all delinquent FBAR filers. You must file at least 6 years of FBARs when you file under the Streamlined Procedures.
Get started today by contacting an expat tax accountant from My CPA, PA. We are here to answer any questions you may have and help you to adequately file your taxes.
Information Only / No Legal Advice Intended
This publication is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, you are advised to consult with your own attorney, CPA, and/or another advisor regarding your specific situation.
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