In order to be eligible for the Streamlined Offshore Filing Procedure for American citizens or Green Card holders that are outside the United States, you need to fulfill a couple of conditions:
- One is that you should have been a non-resident defined under the rules, and
- The second is that you should not have reported income from a specified foreign financial asset, and not reported a foreign bank account, and all of this should have been under non-willful conduct.
Starting with the non-residency requirements – It basically states that if you, as an American citizen or a Green Card holder, are living outside of the United States for, at least one (1), out of the most recent three (3) years, and in that one year you are outside of the United States for at least 330 days, then that satisfies the non-residency requirements under the Streamlined eligibility.
So, if you meet all of these tests and criteria, then you can absolutely be eligible for the Streamlined Offshore Filing Procedure.
How does the Streamlined Offshore Procedure work?
The scope of the streamline offshore filing procedures includes:
Filing (the most recent) three years of delinquent federal income tax returns on the Form 1040. This also includes filing any additional informational returns relevant to those three years and attaching them into the 1040.
Usual informational returns include:
• Forms 3520, which is for foreign trust, or if you received a foreign gift.
• A Form 5471, if you happen to be a shareholder in a foreign corporation outside the United States, or
• The Form 8938 brought in by the FATCA law which is for specified foreign financial assets you hold outside the United States.
The second angle is the six years of the most recent delinquent foreign bank account reports. This is reported on the FINCen Form 114, and these can be electronically filed. These basically report your foreign bank accounts outside the United States.
The scope also involves you paying any taxes that you owe on each of these three years of tax returns. If you do not owe anything, then there is nothing to pay. However, if you do owe, given that, by definition, these returns need to be delinquent it also means that the payment is late; and when there is late payment the IRS also assess you late payment penalties. And this is calculated from the original due date of each of those three tax returns, which, usually, is the 15th of April following that particular year.
The scope of the program also includes you cleaning up your records with the IRS for any delinquency over the years of not having filed for a few years. They will not open years before these three, once your returns get into the system, and there are going to be no penalties. There will be no late payment penalties, even though you are paying late payment interests, and they will be no late filing penalties, because the program itself needs to be late.
There will also be not accuracy related penalties, in case it is found out later. And there will be no penalties relating to any of the informational returns which are attached to the 1040 as well.
The only point to watch out here is that, while the IRS tells you that they will not assess all these penalties, if it is determined later that you willfully did something which was fraudulent then all the penalties are back on the table.
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