For many taxpayers, especially U.S. citizens living abroad or those with foreign assets, getting back into good standing with the IRS can be an overwhelming task. If you have missed tax filings or failed to report foreign income, penalties can pile up quickly, creating financial and legal stress. Fortunately, the IRS offers a solution in the form of the Streamlined Procedure, a program designed to help individuals come into compliance with U.S. tax laws without facing severe penalties.
At our firm, we specialize in assisting clients through this process. Here’s everything you need to know about the Streamlined Procedure and how our experienced tax lawyers can guide you toward tax relief.
What is the Streamlined Procedure?
The Streamlined Procedure is an IRS program that allows taxpayers who have unintentionally failed to file their tax returns or report their foreign income to come into compliance with a lower risk of penalties. It is especially designed for those who:
- Have non-willfully failed to file tax returns or report foreign accounts.
- Are U.S. citizens or green card holders living abroad or those with foreign financial assets.
The IRS offers two distinct pathways under this program:
- Streamlined Domestic Offshore Procedures for U.S. residents or citizens with offshore income and unreported accounts.
- Streamlined Foreign Offshore Procedures for U.S. citizens or residents living abroad who need to come into compliance with both tax filings and Foreign Bank Account Reporting (FBAR) requirements.
How Does the Streamlined Procedure Work?
The Streamlined Procedure offers a more forgiving path to tax compliance by significantly reducing penalties compared to traditional methods. The process generally involves the following steps:
- File Tax Returns:
- You must file three years of tax returns for the most recent tax years in which you have failed to file (this is typically the last three years but can vary depending on your situation).
- File Foreign Bank Account Reports (FBAR):
- If applicable, you will need to file six years of FBARs to disclose your foreign financial accounts.
- Certify Non-Willful Behavior:
- You must certify under penalty of perjury that your failure to report the foreign income or file tax returns was non-willful. This is crucial because the Streamlined Procedure is intended for those who unintentionally failed to comply with tax obligations.
- Pay Outstanding Taxes:
- If you owe taxes, you will need to pay the amount due for those years. In most cases, if the failure was non-willful, the IRS will waive significant penalties, such as failure-to-file and failure-to-pay penalties, though interest may still apply.
- Submit the Streamlined Filing Compliance Procedures Package:
- Once all the necessary returns and FBARs are filed, you’ll submit your package to the IRS for review.
What Are the Benefits of the Streamlined Procedure?
The Streamlined Procedure offers significant relief to taxpayers who might otherwise face serious consequences for failing to file tax returns or report foreign income. Some of the major benefits include:
- Reduced Penalties:
- By utilizing the Streamlined Procedure, many taxpayers can avoid steep penalties that are typically imposed for non-compliance, including failure-to-file and failure-to-pay penalties. In some cases, the only penalty you’ll face is a 20% penalty on the highest balance of foreign accounts during the six-year period, and only if the failure to report was related to offshore accounts.
- Simplified Process:
- The Streamlined Procedure is generally much faster and simpler than other IRS tax compliance programs, like the Offshore Voluntary Disclosure Program (OVDP), which requires more extensive documentation and has higher penalties.
- Faster Resolution:
- The process is usually completed in a shorter time frame, allowing you to resolve any tax issues and move forward with peace of mind.
Who Should Consider the Streamlined Procedure?
The Streamlined Procedure is particularly beneficial for:
- U.S. expats: Individuals who live abroad and have foreign income or assets but have not filed U.S. tax returns or reported foreign accounts.
- Non-U.S. residents with undisclosed foreign accounts or income.
- People with late filings: Those who have not filed tax returns for multiple years or have not reported foreign accounts as required.
However, this program is not suitable for individuals who willfully failed to file returns or report income. If the IRS determines your failure was willful, you could be subject to severe penalties and may need to explore other options, such as the Voluntary Disclosure Program.
How We Can Help
Navigating the Streamlined Procedure can be complicated, and the paperwork involved may seem daunting. Whether you’ve missed tax filings, failed to report foreign income, or need assistance completing the required forms, our team is here to help.
We specialize in guiding clients through the Streamlined Procedure, ensuring that all documentation is properly completed and submitted to the IRS. Our legal team will also help you assess whether the Streamlined Procedure is the right option for your specific situation and advise you on the best course of action for resolving your tax issues.
If you’re facing non-compliance concerns with the IRS, contact us today for a consultation. Let us help you navigate the Streamlined Procedure and find a path to tax relief with minimal penalties and legal consequences.
