The liberalized 2014 Streamlined Foreign Offshore Process eligibility were on June 18, 2014 and remain in effect as of this writing. There are many benefits to this disclosure program, mainly a 0% offshore penalty by default. In this article, we outline the steps to determine if you are eligible, and the procedure to complete a successful streamlined offshore OVDP.
Eligibility Requirements for Streamlined Foreign Offshore OVDP
- Must be an individual or the estate of an individual taxpayer.
- Must 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.
- Ineligible if the IRS has instituted a civil examination of the taxpayer’s returns for any taxable year, regardless of whether it relates to undisclosed foreign financial assets. Taxpayers under exam may consult their agent.
- Ineligible if under criminal investigation by the IRS CI department.
- “Quiet disclosures” still eligible for streamlined but previously assessed penalties will not be removed.
- Must have Taxpayer Identification Number (SSN or ITIN or ITIN application).
- Not available for taxpayers who submitted OVDP Intake Application/Disclosure AFTER July 1, 2014. This is huge! Especially for those who have already submitted a Pre-clearance. If you want to be eligible for the Streamlined Foreign Offshore Disclosure, DO NOT submit an OVDP Intake application or disclosure. Still, we are finding taxpayers who were elgibile for Streamlined but were strong-armed into making a Standard Offshore Voluntary Disclosure. If you do you will be forced into the Standard OVDP and the only way to reduce offshore penalties is with an Opt-out.
Non-Residency Requirement Streamlined Foreign Offshore Procedures
The phrase "foreign offshore" may seem redundant, but in this case, they refer to two separate things. The "foreign" relates to the taxpayer — are you living somewhere other than the US (or territories)? The offshore refers to the bank, meaning is your bank or financial institution located overseas.
So what does it mean to be "foreign" to qualify for the foreign Streamlined program? Here is the test:
- Non-Residency Requirement for US Citizens or Green Card Holders: In any one or more of the 3 most recent years for which the US tax return due date (or properly applied extended due date) has passed, the individual did not have a US abode and the individual was physically outside the US for at least 330 full days. Temporary presence in the US nor maintenance of a dwelling in the US is not sufficient to say that you had a US abode. “Abode” means your home, habitation, domicile, residence, or place of dwelling; it does not mean your principal place of business.
- Non-Residency Requirement for Non-US Citizens/Green Card Holders: In any one or more of the last 3 years for which the US tax return due date (or properly applied extended due date) has passed, the individual did not meet the substantial presence test of IRC section 7701(b)(3).
Streamlined OVDP Procedures
These are the general Streamlined "foreign" offshore procedures.
- For each of the past 3 years for US tax return due date (or properly applied for extended due date) has passed.
- If returns have not previously been filed: Submit a complete and accurate delinquent tax return using Form 1040, together with the required information returns, even if these information returns would normally be filed separately had the taxpayer filed on time.
- If returns have been filed previously: Submit a complete and accurate amended tax return using Form 1040-X, together with the required information returns, even if these information returns would normally be filed separately had the taxpayer filed on time.
- Include at the top of the first page of each delinquent or amended tax return and at the top of each information return “Streamlined Foreign Offshore” written in RED to indicate that the returns are being submitted under these procedures. This is critical to ensure the returns are processed correctly.
Certification of non-willfulness
The IRS will be auditing certain streamlined submissions for accuracy and to see if there is a basis to assert willful FBAR penalties of up to 50% of account value.
FBAR Willfulness requires more than just filing an incorrect Schedule B. Willfulness requires more than just not filing an FBAR. The IRS confuses the standard oftentimes. Unfortunately, taxpayers assume the IRS will act fairly. IRS Revenue Agents are trained on whether or not they can do something, regardless of fairness.
Willfulness is a legal term of art, and willfulness is more than negligence. It is essential you get a legal opinion on whether or not you were willful, and have that legal opinion certified in your non-willful certification. We have seen taxpayer make fatal mistakes by saying something that they thought was innocuous but wound up giving the IRS the exact evidence they need t o support a willful FBAR penaly on audit. If you need assistance, contact us. We can help.
