February 2019 JD Supra
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Streamlined Filing Program for U.S. Taxpayers Residing Outside of the U.S. continues to be available but can be Discontinued at any time! was published by JD Supra on 2/27/19.

After the closing of the Offshore Voluntary Disclosure Program (OVDP) – which ended on September 28, 2018, the US Department of Treasury released a Memorandum on November 20, 2018,  disclosing an “Updated Voluntary Disclosure Practice”. This Memorandum states that certain Taxpayers with unfiled returns and unreported income can still come into compliance via the Streamlined Filing Compliance Procedures (SFCP), and that this program could be discontinued (like the OVDP) at any time but is currently available.    

SFCP continues to be an option available for US Taxpayers with unreported foreign financial assets and income   

The SFCP is intended for the Taxpayers that have acted non-willfully.   The Streamlined process is only available to US individual Taxpayers and Estates that have failed to report foreign financial assets and pay all the taxes due with respect to those assets. The Individuals and Estates:

  • Cannot be under IRS examination,
  • Must have a valid tax identification number.
  • Have to certify, under penalty of perjury, that their noncompliance was non-willful.

Individual Taxpayers or Estates using Streamlined filing Compliance Procedures must be able to certify that their failures to report are related to non-willful conduct

According to IRS:  “Non-Willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law”.  “Willful is voluntary, conscious, and intentional”.

The certification of non-willful conduct to IRS is a written statement signed under penalties of perjury.  It certifies the non-willful conduct of the Taxpayer with respect to all foreign activities and assets. IRS provides the following guidance to Taxpayers with respect to the explanation of non-willful conduct:

  • Provide specific reasons and background for the failure to report all income, pay all tax, and submit all required information returns, including Foreign Bank and Financial Accounts Report (FBARs),
  • Include the whole story including the unfavorable and favorable facts.  Include personal background, financial background, and anything else relevant to the failure to report all income, pay all tax, and submit all required information returns, including FBARs.
  • Explanation of the source of funds in all the foreign financial accounts/assets. For example, explain whether the accounts/assets were inherited, whether the accounts/assets were opened while residing in a foreign country, or whether there was a business reason to open or use it.
  • Explanation of the Taxpayer’s contacts with the account/asset including withdrawals, deposits, and investment/management decisions. Provide a complete story about the foreign financial account/asset.

IRS acknowledges the following common situations for Taxpayers:

  • Moved abroad and overlooked and were “unaware” of their US tax responsibilities (a sincere misunderstanding).  
  • Failed to acknowledge their financial interest in or signature authority over foreign financial accounts on Form 1040, Schedule B.  If Taxpayer (or the return preparer) inadvertently checked “no” on Schedule B, line 7a, they need to provide the explanation.
  • Realized that they owned or controlled a foreign entity (e.g., corporation, trust, partnership, IBC, etc.) and failed to properly report ownership of the entity or transactions with the foreign entity. If Taxpayer (or the return preparer) inadvertently failed to report ownership or control of the foreign entity or transactions with the foreign entity, an explanation as to why, including the understanding of the Taxpayer’s reporting obligations to the IRS and to foreign jurisdictions.
  • Relied on a professional advisor; then provide the name, address, and telephone number of the advisor and a summary of the advice. Also provide background such as how the Taxpayer came into contact with the advisor and frequency of communication with the advisor.
  • Married taxpayers submitting a joint certification that contains different reasons must provide the individual reasons for each spouse separately in the statement of facts.

Don’t be a Victim of your own making

The SFCP is designed to assist Taxpayers with coming into compliance, and willingly remedy their past mistakes.  Its purpose is to provide Taxpayers with an option for becoming compliant and to remain compliant after the process.  Taxpayers that are out of compliance ought to consult with a specialized tax advisor before the US Treasury eliminated the SFCP as an option.