To help make things simpler for taxpayers, the IRS introduced new Streamlined Foreign Offshore Procedures on June 18, 2014. There are lots of benefits to this program, largely a 0% offshore penalty by default. In this article, we explain the steps to find out if you are eligible, and the procedure to complete a successful streamlined offshore OVDP.
Eligibility Requirements
• Should be individual taxpayers, including estates of individual tax payers.
• Have to certify that the failure to report all income, pay out all taxes, and submit all required information returns, including FBARs, was as a result of non-willful conduct.
• Won't be permitted to use the streamlined procedures, if the IRS has initiated a civil examination or criminal investigation on a taxpayer's information returns for any tax calendar year.
• Taxpayers who made "Quiet disclosures" may still use the streamlined procedures but any previously assessed penalties will not be abated.
• Must have a valid Taxpayer Identification Number (SSN or ITIN)
• Unavailable for taxpayers who submitted OVDP Intake Letter/Disclosure AFTER July 1, 2014. This offers great advantage to those who have submitted their Pre-clearance already. Therefore it is better to not submit an OVDP intake application, if you want to become eligible for the Streamlined Foreign Offshore Procedure. If you do, the OVDP opt-out becomes the only option for you to reduce offshore penalties. If you have submitted a voluntary disclosure prior to July 1, 2014, you may qualify for favorable “transitional treatment” under OVDP.
Non-Residency Requirements
• Non-residency requirement applicable to U.S. citizens or Green Card Holders: In any one or more of the 3 recent years for which the tax return due date has gone by, the person didn't have a US abode and she or he was physically present outside the U.S. for minimum 330 days. "Abode" does not mean a person's place of work - check IRS Publication 54 for more details on the meaning of it.
• For Non-US Citizens/Green Card Holders: If, in any one or more of the most recent three years for which the U.S. tax return due date (or a properly extended due date) has passed, the individual didn't meet the "substantial presence test". For additional information regarding this test, see IRS Publication 519.
Instructions for the Streamlined OVDP Procedures
1. For each of the past three years for US tax return due date (or properly applied for extended due date) has passed:
• If return was not filed previously, submit a delinquent return using Form 1040, together with the required information returns (i.e, Form 8938, 3520, and 5471).
• If tax return have been filed previously, send a complete amended return (using Form 1040X) along with the essential information returns. Generally, information returns will be submitted separately had the taxpayer filed an accurate original tax return.
2. Include near the top of the first page of each delinquent or amended tax return and also at the top of each information return “Streamlined Foreign Offshore” written in Red color to signify that the returns are actually being submitted under these procedures. This would ensure the tax returns get processed under special procedures.
Certification of non-willful conduct
Willfulness demands more than checking the wrong or no box on a Schedule B. Willfulness is not just about non-filing of FBAR. It is recommended to get a legal advice on your non-willfulness or willful conduct.
File missing FBARs
For each missed FBAR filing deadline for recent six years, submit delinquent FBARs electronically at FinCen web site and should include a statement declaring that it's being submitted as a part of Streamlined Procedures.
Eligibility Requirements
• Should be individual taxpayers, including estates of individual tax payers.
• Have to certify that the failure to report all income, pay out all taxes, and submit all required information returns, including FBARs, was as a result of non-willful conduct.
• Won't be permitted to use the streamlined procedures, if the IRS has initiated a civil examination or criminal investigation on a taxpayer's information returns for any tax calendar year.
• Taxpayers who made "Quiet disclosures" may still use the streamlined procedures but any previously assessed penalties will not be abated.
• Must have a valid Taxpayer Identification Number (SSN or ITIN)
• Unavailable for taxpayers who submitted OVDP Intake Letter/Disclosure AFTER July 1, 2014. This offers great advantage to those who have submitted their Pre-clearance already. Therefore it is better to not submit an OVDP intake application, if you want to become eligible for the Streamlined Foreign Offshore Procedure. If you do, the OVDP opt-out becomes the only option for you to reduce offshore penalties. If you have submitted a voluntary disclosure prior to July 1, 2014, you may qualify for favorable “transitional treatment” under OVDP.
Non-Residency Requirements
• Non-residency requirement applicable to U.S. citizens or Green Card Holders: In any one or more of the 3 recent years for which the tax return due date has gone by, the person didn't have a US abode and she or he was physically present outside the U.S. for minimum 330 days. "Abode" does not mean a person's place of work - check IRS Publication 54 for more details on the meaning of it.
• For Non-US Citizens/Green Card Holders: If, in any one or more of the most recent three years for which the U.S. tax return due date (or a properly extended due date) has passed, the individual didn't meet the "substantial presence test". For additional information regarding this test, see IRS Publication 519.
Instructions for the Streamlined OVDP Procedures
1. For each of the past three years for US tax return due date (or properly applied for extended due date) has passed:
• If return was not filed previously, submit a delinquent return using Form 1040, together with the required information returns (i.e, Form 8938, 3520, and 5471).
• If tax return have been filed previously, send a complete amended return (using Form 1040X) along with the essential information returns. Generally, information returns will be submitted separately had the taxpayer filed an accurate original tax return.
2. Include near the top of the first page of each delinquent or amended tax return and also at the top of each information return “Streamlined Foreign Offshore” written in Red color to signify that the returns are actually being submitted under these procedures. This would ensure the tax returns get processed under special procedures.
Certification of non-willful conduct
Willfulness demands more than checking the wrong or no box on a Schedule B. Willfulness is not just about non-filing of FBAR. It is recommended to get a legal advice on your non-willfulness or willful conduct.
File missing FBARs
For each missed FBAR filing deadline for recent six years, submit delinquent FBARs electronically at FinCen web site and should include a statement declaring that it's being submitted as a part of Streamlined Procedures.