U.S. Taxpayers Living Abroad: the 2014 Streamlined Foreign Offshore Procedures
For taxpayers living outside the United States, the 2014 OVDP rules bring significant changes to the streamlined program that was available under the 2012 program. Under the 2014 OVDP Streamlined Foreign Offshore Procedures, like the 2012 streamlined OVDP program, all offshore penalties will be waived entirely for those who qualify. What did change is the qualification requirements: it is much easier to qualify than under the previous program.
If you are interested in a more in-depth discussion on the previous version of the Streamlined OVDP program, have a look at the article I wrote on the topic: Americans Living Abroad: Can You Qualify for the Streamlined OVDP?
Streamlined Foreign Offshore Procedure qualification requirements
In order to qualify under the new Streamlined Foreign Offshore Procedure, four eligibility requirements must be met:
- Meet the applicable non-residency requirement. Under the 2014 OVDP program, taxpayers who were non-residents for any of the last three years may qualify. To meet the non-residency requirement, several conditions must be met: most important of which is that you must not have an abode in the United States, and must have spent at least 330 days outside the country during the year in question. This requirement is much more lenient than the previous streamlined procedure, which required that the taxpayer not have lived inside the United States for any period of time since 2009, thus disqualifying any person who previously lived overseas, but has since moved to the United States.
- Have filed to report income from a foreign financial asset and pay U.S. tax on that income. Like with the Domestic program, the reason this program is not available to taxpayers who properly reported all of their income and paid all of their tax is because a far simpler option exists: simply file 6 years of FBARS, accompanied by a statement explaining why they were late and that all tax has been paid, and no penalties will be assessed.
- The failure to meet your obligations was non-willful. This analysis is the same as with the Streamlined Domestic Filing Procedures: conduct is non-willful so long as it did not result from the conscious disregard of a known legal duty. Simply put, if the reason you failed to report your foreign accounts was because you did not know you were supposed to, then your conduct will be considered non-willful.
- No failure-to-file requirement. Under the previous Streamlined OVDP program, only taxpayers who have neglected to file all of their U.S. tax returns since 2009 qualified. Under the 2014 version, that requirement no longer exists. Even if you filed your U.S. tax returns, but failed to disclose your bank accounts, you can still qualify for the 2014 Streamlined Foreign Offshore Procedures.
- No maximum amount of tax due. Under the 2012 Streamlined OVDP program, one requirement was that you owe $1,500 or less in tax for each of the years covered by your submission. Under the 2014 program, this requirement no longer exists: taxpayers who meet the three requirements listed above may enter the program, regardless of the amount of tax due.
- No “low compliance risk” requirement. One major flaw of the 2012 Streamlined OVDP program was that only taxpayers who presented a “low compliance risk” qualified. If this sounds vague and confusing it’s because it is: this was a highly subjective test that depended entirely on the judgment of the agent assigned to your case. This requirement was also done away with in the 2014 OVDI updates.
Streamlined Foreign Offshore Procedure submission requirements
Like with the 2014 Streamlined Domestic OVDP (OVDI) program, it is crucial that you follow all the instructions carefully and do everything properly, or risk being disqualified:
- Prepare original or amended returns for each of the most recent three years.
- Write, in red ink, on the top of each page of each form you fill out “Streamlined Foreign Offshore.”
- Complete and sign a certification statement, under penalty of perjury, stating that: you are eligible for the Streamlined Foreign Offshore Procedures; all delinquent FBARS have been filed; your failure to comply with your tax obligations was due to non-willful conduct.
- Pay all tax due on the returns, along with all interest. Be sure to include your taxpayer identification number on the memo of the check.
- If you are ineligible for a Social Security number, and do not already have an Individual Taxpayer Identification Number (ITIN), prepare an ITIN application.
- If you are looking for a late election to defer income from a foreign retirement savings plan, as permitted by an applicable tax treaty, include a statement requesting an extension to file such election and a statement signed under penalty of perjury laying out the facts leading to your failure to make the election and the discover of the mistake. If the account in question is a Canadian RSP, include a Form 8891 for each covered tax year.
- All the documents listed above must be sent to the designated service center in Austin, TX.
- File FBARs for each of the most recent six years for which the FBAR due date has passed. These need to be filed online through the FinCen website.