For taxpayers living overseas who have not filed U.S. tax returns in the past, the IRS is providing options for resolving their tax and penalty obligations. The U.S. is one of only two countries (the other Eritrea) that taxes its citizens on their worldwide income regardless of their location.
We know of taxpayers who have not submitted tax returns for more than 10 years because they were simply unaware of the need to do so. Taxpayers who have not filed taxes in the past have asked the following types of questions:
- Is there anything that can be done for me to file my tax returns?
- If I have never filed taxes before (we know taxpayers who have not filed for more than 15 years), will the IRS want all those returns to be filed?
- Will there be harsh penalties for not filing timely?
Certain taxpayers with the above questions may be able to qualify for the streamlined filing procedures if they meet specific criteria.
Eligibility for the streamlined procedures via the IRS:
- Taxpayers will be required to certify that the failure to report all income, pay all tax and submit all required information returns, including FBARs was due to non-willful conduct.
- Taxpayers will not be eligible to use the streamlined procedures if the IRS has initiated a civil examination of taxpayer’s returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets.
- Taxpayers who have previously filed delinquent or amended returns to address U.S. tax and information reporting obligations with respect to foreign financial assets (so-called “quiet disclosures” made outside of the Offshore Voluntary Disclosure Program (OVDP) or its predecessor programs) may still use the streamlined procedures by following the instructions.
- For individuals who are not eligible for an SSN or ITIN, the tax return will not be processed under the streamlined procedures. However, submission can be made under the streamlined procedures if accompanied by a complete ITIN application.
- Individual U.S. citizens or lawful permanent residents (i.e., “green card holders”) must meet the applicable non-residency requirement if, in any one or more of the most recent three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the individual did not have a U.S. abode and the individual was physically outside the U.S. for at least 330 full days.
Background of streamlined filing procedure
U.S. taxpayers eligible to use the streamlined filing procedure must:
(1) for each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed, file delinquent or amended tax returns, together with all required information returns (e.g., Forms 3520, 5471, and 8938);
(2) for each of the most recent 6 years for which the FBAR due date has passed, file any delinquent FBARs (FinCEN Form 114, previously Form TD F 90-22.1). The full amount of the tax and interest due in connection with these filings must be remitted with the delinquent or amended returns;
(3) Complete and sign a statement on the Certification by U.S. Person Residing Outside of the U.S. (Form 14653) certifying that you are eligible for the Streamlined Foreign Offshore Procedures and that all required FBARs have now been filed; and
(4) Submit payment of all tax due as reflected on the tax returns and all applicable statutory interest with respect to each of the late payment amounts. Your taxpayer identification number must be included on your check.
Note that this article is published on June 30, 2018 and there may have been updates and/or changes to this procedure. If you have further questions about the streamlined filing procedure or other U.S. tax filing questions living overseas, please contact us and we will let you know what solutions are available. You may also find more valuable information on the IRS’s streamlined filing procedure here: