Streamlined Filing Compliance Procedures Under OVDP

In addition to the formal Offshore Voluntary Disclosure Program, the IRS offers Streamlined Filing Compliance Procedures for certain qualified taxpayers. The Streamlined Procedures apply to non-resident non-filer taxpayers. On June 18, 2014, the IRS announced new changes to the Streamlined Procedures which will allow more taxpayers to qualify as well as ease the process for qualifying applicants.

What is the Purpose of the Streamlined Filing Compliance Procedures?

The streamlined compliance procedures are available to taxpayers who are able to demonstrate that their failure to report and pay taxes on foreign financial accounts and assets was not willful (1). Under the streamlined filing compliance procedures, taxpayers in this situation are allowed to file amended delinquent returns to comply with their tax obligations. The streamlined procedures also allows the taxpayers to resolve tax and penalty obligations associated with the delinquent returns in a relatively fast and organized manner.

Although the streamlined procedures were first introduced in connection with the 2009 OVDP, they only applied to a limited subset of taxpayers. The changes announced in June 2014 have expanded the eligibility of these streamlined procedures. Among the changes to the streamlined procedures are the following:

 

1. extension of eligibility to U.S. taxpayers residing in the United States;
2. elimination of the $1,500 tax threshold; and
3. elimination of the risk assessment process associated with the streamlined filing compliance procedure announced in 2012 (2).

Eligibility of Taxpayers to Participate in the Streamlined Filing Compliance Procedures

The streamlined procedures apply to individual taxpayers. This can include the estates of individual taxpayers. In a change from previous iterations of the streamlined filing compliance procedures, the 2014 version is available to both U.S. taxpayers who reside within and outside the United States. There are separate rules which apply to non-U.S. residents (“Streamlined Foreign Offshore Procedures”) and U.S. residents (“Streamlined Domestic Offshore Procedures”). The essential component of the streamlined procedures is that the taxpayer must certify that the failure to comply with reporting and tax obligations with respect to foreign financial accounts and assets is non-willful (3).

Taxpayers may be disqualified from participating in the streamlined procedures if they are already under investigation by the IRS. This prohibition will apply even if the examination does not apply to the taxpayer’s foreign financial assets. Thus, if the IRS has instituted a civil examination against the taxpayer for any taxable year, the taxpayer cannot use the streamlined procedures. Similarly, if the Criminal Investigation division has launched an investigation against the taxpayer for possible federal tax crimes, he or she cannot use the streamlined procedures.

If I Made a Quiet Disclosure, Am I Eligible for the Streamlined Procedures?

Yes, taxpayers who made so-called “quiet disclosures” outside of the Offshore Voluntary Disclosure Program in an attempt to comply with U.S. informational reporting and tax obligations may still participate in the streamlined procedures if they meet other requirements. However, any penalties incurred previously as a result of the taxpayer’s failure to make required filings will not be abated through the use of the streamlined procedures (4).

How Are Returns Submitted Under the Streamlined Procedures Treated by the IRS?

When the taxpayer submits a return under the streamlined procedures, the return is generally treated the same as any other return would be when filed by a taxpayer. In contrast to a taxpayer who participates in the formal OVDP process, a taxpayer who submits under the streamlined procedures will not have his or her return officially acknowledged by the IRS. In addition, there is generally no need to come to a formal closing agreement with the IRS when streamlined procedures are used.

Returns submitted under the streamlined procedures may be subject to an IRS audit, just as any other tax return may be chosen for an audit under existing audit selection processes. Returns submitted under the streamlined procedures may also be subject to various verification procedures, civil liabilities, and even criminal penalties where appropriate. Thus, it is important to note that use of the streamlined procedures does not automatically protect a taxpayer from the imposition of civil fines and penalties or criminal investigation. For this reason, taxpayers who wish to protect themselves against substantial monetary penalties or criminal prosecution for failure to report income, pay tax, or provide informational returns should consider using the Offshore Voluntary Disclosure Program instead of the streamlined procedures.

However, returns submitted under streamlined procedures are also not automatically subject to IRS audit; that determination is made on a case-by-case basis.

Can I Use Both Streamlined Procedures and Offshore Voluntary Disclosure Program at the Same Time?

No, it is not possible for a taxpayer to use both the streamlined procedures and the OVDP process at the same time. As soon as a taxpayer makes a submission under the streamlined procedures, he or she is then precluded from applying for Offshore Voluntary Disclosure Program. Conversely, any taxpayer who has applied for OVDP by the submission of an OVDP voluntary disclosure letter cannot then attempt to use the streamlined procedures (5). However, there is one opportunity for a taxpayer to avail him or herself of the beneficial penalty terms under the streamlined procedures if he or she has already filed a voluntary disclosure letter under OVDP. This opportunity is only available if the taxpayer is would be otherwise eligible for streamlined procedures and has not entered into a final closing agreement with the IRS under OVDP. Although the taxpayer seeking streamlined penalty terms under OVDP does not have to opt-out of his or her OVDP submission, he or she 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.” (6)

How a Tax Attorney Can Help with Streamlined Compliance Filing Procedures Under OVDP

If you have undisclosed offshore foreign accounts or assets, you may be eligible to participate in the streamlined procedures under OVDP. In order to evaluate whether the streamlined procedures apply to your international tax situation, you should consider consulting a knowledgeable tax attorney. The OVDP program is rapidly changing, but a tax attorney can help you navigate the confusing aspects of the IRS program.

The Tax Lawyer - William D. Hartsock has been successfully helping clients with tax issues related to their foreign assets since the early 1980s. Mr. Hartsock offers free consultations with the full benefit and protections of attorney client privilege to help people clearly understand their situation and options based on the circumstances of their case. To schedule your free consultation simply fill out the contact form found on this page, or call (858) 481-4844.

Tax Law References

1. Streamlined Filing Compliance Procedures, http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures.
2. Streamlined Filing Compliance Procedures, http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures.
3. Streamlined Filing Compliance Procedures, http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures.
4. Streamlined Filing Compliance Procedures, http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures.
5. See Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers, FAQ 24, http://www.irs.gov/Individuals/International-Taxpayers/Offshore-Voluntary-Disclosure-Program-Frequently-Asked-Questions-and-Answers-2012-Revised.
6. Streamlined Filing Compliance Procedures, http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures.