Streamlined Domestic Offshore Procedures
U.S. Taxpayers Residing in the United States
Disclaimer: The following IRS Streamlined Domestic Offshore Procedures material is intended for general information only and not legal or tax advice.
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Source: IRS the following are referred to as the Streamlined Domestic Offshore procedures.
Eligibility for the Streamlined Domestic Offshore Procedures
In addition to meeting the general eligibility criteria, individual U.S. taxpayers, or their estates, contemplating to use the Streamlined Domestic Offshore Procedures, must:
- Fail to meet the non-residency requirement, for joint return filers, one or both spouses must fail to meet the applicable non-residency requirement;
- Have formerly filed a U.S. tax return (if required) for each of the most recent 3 years for which the return due dates have passed;
- Have failed to report gross income from a foreign financial asset and pay required tax, and may have failed to file an FBAR and/or one or more international information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621) regarding the foreign financial asset; and,
- Such failures resulted from non-willful conduct, which is due to negligence, inadvertence, or mistake or a good faith misunderstanding of the requirements.
Description of Scope and Effect of Procedures
U.S. taxpayers (U.S. citizens, green card holders, and those meeting the substantial presence test eligible to use the Streamlined Domestic Offshore Procedures must:
- For each of the most recent 3 years for which the U.S. tax return due date has passed, file amended tax returns, along with all required information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621),
- For each of the most recent 6 years for which the FBAR due date has passed, file any delinquent FBARs, and,
- Pay a Title 26 miscellaneous offshore penalty. The full amount of the tax, interest, and miscellaneous offshore penalty due in connection with these filings should be remitted with the amended tax returns.
The Title 26 miscellaneous offshore penalty is equal to 5 percent of the highest aggregate balance/value of the taxpayer’s foreign financial assets that are subject to the miscellaneous offshore penalty during the years in the covered tax return period and the covered FBAR period. For this purpose, the highest aggregate balance/value is determined by aggregating the year-end account balances and year-end asset values of all the foreign financial assets subject to the miscellaneous offshore penalty for each of the years in the covered tax return period and the covered FBAR period and selecting the highest aggregate balance/value from among those years.
A foreign financial asset is subject to the 5-percent miscellaneous offshore penalty in a given year in the covered FBAR period if the asset should have been, but was not, reported on an FBAR for that year. A foreign financial asset is subject to the 5-percent miscellaneous offshore penalty in a given year in the covered tax return period if the asset should have been, but was not, reported on a Form 8938 for that year.
A foreign financial asset is also subject to the 5-percent miscellaneous offshore penalty in a given year in the covered tax return period if the asset was properly reported for that year, but gross income in respect of the asset was not reported in that year.
For example, foreign financial assets may include:
- Financial accounts held at foreign financial institutions;
- Financial accounts held at a foreign branch of a U.S. financial institution;
- Foreign stock or securities not held in a financial account;
- Foreign mutual funds; and,
- Foreign hedge funds and foreign private equity funds.
A taxpayer who is eligible to use these Streamlined Domestic Offshore Procedures and who complies with all the instructions below will be subject only to the Title 26 miscellaneous offshore penalty and will not be subject to accuracy-related penalties, information return penalties, or FBAR penalties.
Even if returns properly filed under these procedures are subsequently selected for audit under existing audit selection processes, the taxpayer will not be subject to accuracy-related penalties with respect to amounts reported on those returns, or to information return penalties or FBAR penalties, unless the examination results in a determination that the original return was fraudulent and/or that the FBAR violation was willful.
Any previously assessed penalties with respect to those years, however, will not be abated. Further, as with any U.S. tax return filed in the normal course, if the IRS determines an additional tax deficiency for a return submitted under these procedures, the IRS may assert applicable additions to tax and penalties relating to that additional deficiency.
For returns filed under these procedures, retroactive relief will be provided for failure to timely elect income deferral on certain retirement and savings plans where deferral is permitted by the applicable treaty. The proper deferral elections with respect to such plans must be made with the submission. See the instructions below for the information required to be submitted with such requests.
Specific Instructions for the Streamlined Domestic Offshore Procedures
Failure to follow these instructions or to submit the items described below will result in returns being processed in the normal course without the benefit of the favorable terms of these procedures.
- For each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed, submit a complete and accurate amended tax return using Form 1040X, Amended U.S. Individual Income Tax Return, together with any required information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621) even if these information returns would normally not be submitted with the Form 1040 had the taxpayer filed a complete and accurate original return. You may not file delinquent income tax returns (including Form 1040, U.S. Individual Income Tax Return) using these procedures.
- Include at the top of the first page of each amended tax return and at the top of each information return “Streamlined Domestic Offshore” written in red to indicate that the returns are being submitted under these procedures. This is critical to ensure that your returns are processed through these special procedures.
- Complete and sign a statement on the Certification by U.S. Person Residing in the U.S. (Form 14654) PDF certifying: (1) that you are eligible for the Streamlined Domestic Offshore Procedures; (2) that all required FBARs have now been filed (see instruction 9 below); (3) that the failure to report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct; and (4) that the miscellaneous offshore penalty amount is accurate (see instruction 5 below). You must maintain your foreign financial asset information supporting the self-certified miscellaneous offshore penalty computation and be prepared to provide it upon request. You must submit an original signed statement and attach copies of the statement to each tax return and information return being submitted through these procedures. You should not attach copies of the statement to FBARs. Failure to submit this statement, or submission of an incomplete or otherwise deficient statement, will result in returns being processed in the normal course without the benefit of the favorable terms of these procedures.
- Submit payment of all tax due as reflected on the tax returns and all applicable statutory interest with respect to each of the late payment amounts. Your taxpayer identification number must be included on your check. You may receive a balance due notice or a refund if the tax or interest is not calculated correctly.
- Submit payment of the Title 26 miscellaneous offshore penalty as defined above.
- If you seek relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by an applicable treaty, submit:
- 1. a statement requesting an extension of time to make an election to defer income tax and identifying the applicable treaty provision;
- 2. a dated statement signed by you under penalties of perjury describing:
- a. the events that led to the failure to make the election,
- b. the events that led to the discovery of the failure, and
- c. if you relied on a professional advisor, the nature of the advisor’s engagement and responsibilities; and
- 3. for relevant Canadian plans, see SDO FAQ 8 for current information (Form 8891 is no longer required).
- The documents listed above, together with the payments described above, must be sent in paper form (electronic submissions will not be accepted) to:
Internal Revenue Service
3651 South I-H 35Stop 6063 AUSC
Attn: Streamlined Domestic Offshore
Austin, TX 78741
This address may only be used for returns filed under these procedures. For all future filings, you must file according to regular filing procedures.
- For each of the most recent 6 years for which the FBAR due date has passed, file delinquent FBARs according to the FBAR instructions and include a statement explaining that the FBARs are being filed as part of the Streamlined Filing Compliance Procedures. You are required to file these delinquent FBARs electronically at FinCen. On the cover page of the electronic form, select “Other” as the reason for filing late. An explanation box will appear. In the explanation box, enter “Streamlined Filing Compliance Procedures.”
Zaher Fallahi, IRS Defense Tax Attorney, CPA, represents taxpayers nationwide with the IRS Audit, IRS Voluntary Disclosure Practice (VDP), IRS Streamlined Procedures, FBAR Filing, Foreign Gifts and Cryptocurrency Tax. Consultation is available via toll free 1-(877) 687-7558, (310) 719-1040 (Los Angeles), (714) 546-4272 (Orange County), email firstname.lastname@example.org