What is the Streamlined Foreign Offshore Procedure?
A U.S. citizen or lawful permanent resident (i.e., “green card holders”) has a legal duty to fully comply with U.S. tax laws. "Voluntary compliance" is the cornerstone of the U.S. tax system. While most taxpayers voluntarily comply with their obligations, some fail to do so. Failure to voluntarily comply may result in imprisonment, fines, and penalties.
The U.S. government understands that many U.S. citizens who live outside the U.S. are not familiar with their tax filing obligations due to non-willful misunderstanding of the requirements of the law. For those eligible individuals, the streamlined Foreign Offshore procedure was introduced. Since first introduced, it went through changes that allowed more and more citizens to become eligible to join the procedure.
Submitting a voluntary disclosure may be a means to resolve your non-compliance.
After a taxpayer has completed the streamlined filing compliance procedures, he or she will be expected to comply with U.S. law for all future years and file returns according to regular filing procedures.
What are the benefits of the streamlined Foreign Offshore procedure?
1. Avoid and reduce fines and penalties
A taxpayer who complies with all of the instructions will not be subject to failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties, or FBAR penalties.
2. Reduce preparation costs
Submitting the program significantly decreases tax preparation costs in comparison with the cost of filing the required reports separately.
3. A chance to amend previously filed returns
Even if you previously filed tax returns or FBARs, but those filings were incomplete or inaccurate, you might be eligible for the procedure. 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.
4. Usual IRS scope
Returns submitted under the Streamlined Foreign Offshore Procedures will not be subject to IRS audit automatically, but they may be selected for audit under the existing audit selection processes applicable to any U.S. tax return and may also be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors, and other sources.
5. Statute of limitations
Statute of limitation rules can be complicated, but basically, if you never file a return for a specific year, the IRS has no time limit. With Streamlined Foreign Offshore Procedures, the IRS may examine reports according to the limitation rules, as long as the return was not fraudulent.