If you have failed to comply with United States laws concerning foreign income, accounts, trusts, or entities, and you have under-reported income tax, then the Streamlined Compliance Procedures are likely the best way for you to become compliant.
In a Streamlined Procedures case, we first file FinCEN Forms 114, Report of Foreign Bank and Financial Accounts, “FBARS”, or amended FBARs as needed for the client for the last six years. Then we have U.S. income tax returns or amended income tax returns as needed prepared for the client for the last three years. In a Streamlined Procedures case for a U.S. resident, we submit the income tax returns with Form 14654, Certification by U.S. Person Residing in the United States for Streamlined Domestic Offshore Procedures. In a Streamlined Procedures case for a nonresident of the U.S., we submit the income tax returns with Form 14653, Certification by U.S. Person Residing Outside of the United States for Streamlined Foreign Offshore Procedures. Whether for a resident or a nonresident of the U.S., submission of a Streamlined Procedures case must include a sufficient reasonable cause statement. In submitting a Streamlined Procedures case, we enclose the taxpayer’s payment of tax due for the last three years, and interest on the tax. Under the Streamlined Procedures for a resident of the U.S., the taxpayer must also pay a penalty equal to five percent of the taxpayer’s high aggregate balance of foreign financial accounts as of the end of each of the preceding six years. There is no penalty in a Streamlined Procedures case for a nonresident of the U.S.
Tax due for the last three years, interest on the tax, and penalty, if any, is payable upon submission of the Streamlined Procedures case. We can enter the into an installment agreement with the IRS to pay amounts which the taxpayer is unable to pay upon submission of the case. What is important is that the Streamlined Procedures case is submitted, and that the taxpayer is compliant in reporting, as soon as possible.
Why only the last three years of U.S income tax returns? The IRS’ Streamlined Procedures, whether for residents or nonresidents of the United States, provide that the taxpayer need file conforming income tax returns for only the last three years. If the taxpayer files conforming income tax returns for the last three years, and otherwise fulfills the requirements of the Streamlined Procedures, including filing a statement of non-willfulness on Form 14653 or Form 14654, as the case may be, and paying or arranging to pay tax, interest, penalty, if any, due, earlier years’ tax noncompliance is forgiven.
The Streamlined Procedures are for compliance with the Internal Revenue Code. For Bank Secrecy Act compliance, the taxpayer must file conforming FBARs or amended FBARs for the last six years, as noted above.