If you are a US citizen or resident alien with undeclared or misreported non-US financial assets, the Streamlined Filing Compliance Procedures (SFCP) are your best way to come forward and get compliant – if you qualify. This article explains how to know if you’re eligible.
The underlying cause of your problem is that you have (and have had, for quite some time) a legal obligation to disclose and pay taxes on those non-US assets to the IRS. If you didn’t know about that obligation – or made a mistake when trying to comply with it – you are already at risk of penalties. The SFCP are your best option for dealing with the situation, because these procedures will minimize your penalties.
But not everyone qualifies for the SFCP. Let’s break down the eligibility criteria.
Before Starting, Identify Which Track of the Streamlined Procedures (SFCP) You’ll Take
The SFCP are divided into two tracks depending on where you live. If you are a US person living outside the US, you’ll take the Streamlined Foreign Offshore Procedure (SFOP) track. If you are a US person living in the US, you’ll take the Streamlined Domestic Offshore Procedures (SDOP) track. The criteria for entering both the SFOP and SDOP are the same, and we’ll get to them next. The key difference between the SFOP and SDOP is the penalties involved: 0% of the foreign asset value for the SFOP and 5% for the SDOP. Yes, that means if you live outside the US, you have a shot at eliminating your potential penalties.
Now let’s move on to the qualification criteria for the Streamlined Procedures.
First, You’ll Have to Certify That Your Unmet Reporting Obligation Was Non-willful (an Honest Mistake)
There are many valid reasons why you may not have been aware of your disclosure requirements. Or you may have misinterpreted them – the relevant laws and regulations are highly complex.
In order to qualify for the SFOP or SDOP you need to make a full “statement of facts” concerning your non-willfulness. This statement of facts is a critical for your acceptance into the SFOP or SDOP, and I’ve written a previous article covering all the points that should go into your statement.
Second, To Qualify for the Streamlined Procedures, You Must Have “No Record” with the IRS
Your next requirement is that the IRS cannot have initiated a civil (or criminal, for that matter) examination of any of your tax returns for any taxable year. Such a prior examination would not have to be concerning foreign asset disclosure. Having come under an IRS examination for any reason will disqualify you from the Streamlined Procedures.
Third, You Need to Settle Any Previous Payments and/or Penalties Relating to Other Delinquent or Amended Filings
If you corrected a previous tax return or submitted it late, you’ll need to make all necessary payments and settle any associated back taxes before you can qualify for the SFOP or SDOP. That includes payments associated with a “quiet disclosure” you may have made in the past. (Read more about the rather risky idea of quiet disclosures here.)
And Last but Not Least, To Qualify for the Streamlined Procedures You’ll Need a Social Security Number (SSN)
As a US citizen or green card holder, for all practical purposes you should have been issued a SSN already. So no surprises here. You’ll need it when submitting your application paperwork.
To Sum Up
The last three criteria (no record, all payments settled up, and an SSN) are fairly straightforward. Whether or not your violation was legally non-willful, however, can sometimes be difficult to determine, let alone certify in an official statement of facts. If you’d like more information, we’re here to help!