Streamlined Filing Compliance Procedures

The IRS Streamlined Filing Compliance Procedures provide a way for qualifying taxpayers to correct certain past U.S. international tax and foreign account reporting failures when those failures resulted from non-willful conduct. The appropriate procedure depends heavily on the taxpayer’s residence, filing history, foreign assets, unreported income, and—most importantly—the facts surrounding the prior noncompliance.

For taxpayers with unreported foreign accounts, assets, income, or international information returns, the first question is not simply which forms need to be filed. An important threshold question is why the required filings were missed and whether the conduct can properly be certified as non-willful.

Colorado Legal assists taxpayers with the legal and tax analysis involved in offshore compliance, including FBAR reporting, international tax returns, amended returns, Streamlined submissions, and evaluation of potential voluntary disclosure issues.

What Are the IRS Streamlined Filing Compliance Procedures?

The Streamlined Filing Compliance Procedures are IRS procedures intended for taxpayers whose failures to report foreign financial assets and pay all tax due with respect to those assets resulted from non-willful conduct.

The Streamlined procedures are not the former Offshore Voluntary Disclosure Program, commonly known as OVDP. OVDP closed in 2018. The IRS currently maintains separate compliance paths, including the Streamlined Filing Compliance Procedures and the IRS Criminal Investigation Voluntary Disclosure Practice.

For a taxpayer considering Streamlined treatment, the distinction is critical. Streamlined requires a taxpayer to certify under penalties of perjury that the relevant failures resulted from non-willful conduct.

Streamlined Domestic vs. Streamlined Foreign Offshore Procedures

There are two principal versions of the Streamlined procedures:

Procedure	Generally Intended For	General Penalty Treatment
Streamlined Domestic Offshore Procedures	Qualifying U.S. taxpayers who do not satisfy the Streamlined Foreign non-residency requirements	Generally includes a 5% Title 26 miscellaneous offshore penalty calculated under the Streamlined rules
Streamlined Foreign Offshore Procedures	Qualifying U.S. taxpayers who satisfy the applicable non-residency requirements	Qualifying taxpayers who fully comply with the procedure generally receive more favorable penalty treatment, including no Title 26 miscellaneous offshore penalty

The distinction between Domestic and Foreign Streamlined treatment is therefore much more than a mailing-address question. Eligibility for the Foreign procedure depends on the IRS non-residency rules, and married taxpayers filing jointly must pay particular attention to how those requirements apply to both spouses.

What Does ␜Non-Willful␝ Mean?

The IRS describes non-willful conduct for purposes of the Streamlined procedures as conduct resulting from negligence, inadvertence, mistake, or a good-faith misunderstanding of the requirements of the law.

That short definition can conceal a difficult factual and legal analysis.

Relevant circumstances may include, among other things:

• how and when the foreign account or asset was acquired;
• whether the taxpayer knew about FBAR or other international reporting requirements;
• how prior tax returns were prepared;
• what information was supplied to the return preparer;
• answers given on Schedule B and other tax forms;
• whether foreign income was reported;
• communications with accountants, attorneys, banks, or financial advisers;
• the taxpayer’s education and financial sophistication;
• the purpose and use of the foreign account;
• movement of funds between countries or accounts;
• the taxpayer’s citizenship and residency history;
• prior IRS contacts, examinations, or notices; and
• any facts suggesting concealment—or, conversely, an innocent explanation for the reporting failure.

No single fact necessarily determines the result. A taxpayer’s certification should accurately explain the taxpayer’s actual circumstances rather than attempting to fit the facts into generic language.

For a deeper discussion, see our guide to willful vs. non-willful FBAR violations, including the civil willfulness standard, recklessness, willful blindness, penalties, and disclosure options.

Why the Non-Willfulness Certification Matters

A Streamlined submission is not merely a stack of amended tax returns and delinquent FBARs. The taxpayer must make a formal certification concerning the nature of the prior conduct.

This creates an important difference between ordinary tax-return preparation and offshore compliance work. Before signing a certification, the taxpayer should understand both the facts being disclosed and the legal significance of the representations being made to the IRS.

If the actual facts raise a serious possibility of willfulness, the IRS itself directs taxpayers to consider the Criminal Investigation Voluntary Disclosure Practice and to consult professional or legal advisers.

What Years Are Included in a Streamlined Submission?

A typical Streamlined submission generally involves a defined tax-return period and a longer FBAR period.

• Tax returns: generally the most recent three tax years for which the applicable U.S. return due date, or properly extended due date, has passed.
• FBARs: generally the most recent six calendar years for which the FBAR due date has passed.

The precise years should be determined based on the submission date, applicable filing deadlines, extensions, the taxpayer’s filing history, and any special international tax issues. Certain cases involving foreign corporations or other specialized provisions can require additional analysis beyond a simple three-year assumption.

What May Need to Be Corrected?

Depending on the taxpayer’s circumstances, Streamlined compliance can involve much more than an FBAR.

Potential filings include:

• Form 1040 or amended Form 1040-X;
• FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR);
• Form 8938, Statement of Specified Foreign Financial Assets;
• Form 5471 for certain interests in foreign corporations;
• Form 8621 for certain Passive Foreign Investment Companies (PFICs);
• Form 3520 involving foreign trusts or certain foreign gifts and, when applicable, Form 3520-A;
• Form 8865 involving certain foreign partnerships;
• Form 8858 involving certain foreign disregarded entities or foreign branches;
• foreign tax credit calculations;
• additional schedules reporting foreign income; and
• other international information returns applicable to the taxpayer’s ownership or transactions.

The correct filing package depends on what the taxpayer actually owned, received, controlled, or earned during each year.

See our International Tax resource center for additional foreign reporting topics.

Streamlined Domestic Offshore Procedures

The Streamlined Domestic Offshore Procedures apply to qualifying taxpayers who meet the general Streamlined requirements but do not satisfy the applicable non-residency requirements for Streamlined Foreign treatment.

Among other requirements, a Domestic Streamlined taxpayer must meet the applicable filing-history and eligibility requirements and certify that the prior failures resulted from non-willful conduct.

The 5% Miscellaneous Offshore Penalty

A qualifying Domestic Streamlined submission generally carries a 5% Title 26 miscellaneous offshore penalty. The penalty is not simply 5% of one year’s unreported income or 5% of the current account balance.

The Streamlined rules require identification and valuation of foreign financial assets included in the penalty base. The calculation generally considers the highest aggregate value of the relevant assets during the covered penalty period under the IRS rules.

Correctly identifying the penalty base can be particularly important where the taxpayer owned foreign securities, foreign corporations, foreign mutual funds, or assets reportable on international information returns in addition to ordinary foreign bank accounts.

Streamlined Foreign Offshore Procedures

The Streamlined Foreign Offshore Procedures are available to qualifying taxpayers who satisfy the applicable IRS non-residency requirement as well as the general Streamlined eligibility requirements.

The penalty treatment can be substantially more favorable than the Domestic procedure. A qualifying taxpayer who properly completes the Foreign Streamlined process generally is not subject to the Title 26 miscellaneous offshore penalty and receives the other penalty treatment specified by the IRS procedure.

Because the financial difference can be substantial, the taxpayer’s residence history should be examined carefully rather than assuming that citizenship, mailing address, or the location of the foreign account determines which procedure applies.

Can I Use Streamlined Procedures If the IRS Has Already Contacted Me?

Timing matters.

The IRS states that a taxpayer is not eligible for the Streamlined Filing Compliance Procedures if the IRS has initiated a civil examination of the taxpayer’s returns for any taxable year, even if the examination is unrelated to foreign assets.

Other types of IRS contact can also require careful analysis. A taxpayer who has already received an IRS notice, international information-return penalty, FBAR inquiry, summons, examination notice, or criminal-investigation contact should not assume Streamlined remains available merely because no offshore audit has begun.

What Is a ␜Quiet Disclosure␝?

The term quiet disclosure is commonly used to describe filing amended returns or delinquent foreign information reports outside a formal offshore compliance procedure without affirmatively addressing the taxpayer’s broader offshore compliance circumstances.

Simply filing missing forms does not automatically produce the penalty treatment available under a qualifying Streamlined submission. Conversely, Streamlined is not appropriate merely because its penalty structure appears favorable. Eligibility must exist on the actual facts.

Before deciding how to correct prior filings, it is useful to determine:

• what returns and reports were actually required;
• which years remain relevant;
• whether foreign income was omitted;
• whether the conduct was non-willful;
• whether Streamlined Domestic or Foreign treatment is available;
• whether delinquent international information-return procedures apply; and
• whether the facts instead warrant analysis of the IRS Voluntary Disclosure Practice.

Streamlined Procedures vs. IRS Voluntary Disclosure

Streamlined and the IRS Criminal Investigation Voluntary Disclosure Practice address materially different risk profiles.

Streamlined procedures are built around a certification of non-willful conduct.

By contrast, taxpayers concerned that their failures may have been willful—and who therefore face potential criminal exposure or substantial civil penalties—should evaluate the IRS Criminal Investigation Voluntary Disclosure Practice rather than assuming Streamlined is available.

This distinction is one reason offshore compliance can involve significant legal judgment before the tax forms themselves are prepared.

Colorado Legal also represents taxpayers in criminal tax matters and IRS controversies when the circumstances extend beyond ordinary return preparation.

FBAR and Streamlined Filing Compliance

FBAR violations are frequently what cause taxpayers to discover a larger international tax compliance problem.

A taxpayer may have correctly reported income but missed the FBAR. Another taxpayer may have filed the FBAR but failed to file Form 8938. Still another may have a foreign corporation, foreign mutual fund, inheritance, pension, trust, or other asset that triggers multiple reporting regimes.

For information specifically addressing FinCEN Form 114, see our FBAR Filing Service and FinCEN Form 114 page.

Attorney and CPA Analysis of an Offshore Compliance Problem

International tax compliance frequently combines two disciplines: determining what tax and information returns should have been filed, and evaluating the legal consequences of what occurred in prior years.

Philip M. Falco is both a Colorado attorney and Certified Public Accountant. Colorado Legal can therefore evaluate the underlying tax filings together with the legal and penalty issues that can arise from prior noncompliance.

Depending on the engagement, the analysis may include:

• reviewing previously filed federal income tax returns;
• identifying missing international information returns;
• reviewing foreign financial statements and account histories;
• calculating previously unreported foreign income;
• analyzing FBAR and FATCA reporting obligations;
• reviewing potential PFIC or foreign-entity issues;
• evaluating facts relevant to non-willfulness;
• determining whether Domestic or Foreign Streamlined treatment may apply;
• preparing required amended or delinquent filings when included in the engagement; and
• evaluating whether the circumstances require consideration of a different IRS compliance procedure.

Frequently Asked Questions

Is the IRS Streamlined Filing Compliance Procedure still available?

Yes. The IRS continues to maintain the Streamlined Filing Compliance Procedures for qualifying taxpayers whose failures to report foreign financial assets and pay the related tax resulted from non-willful conduct. The former Offshore Voluntary Disclosure Program, or OVDP, is a different program and is closed.

Is Streamlined the same as offshore voluntary disclosure?

No. The terminology is sometimes used loosely, but the Streamlined Filing Compliance Procedures and the IRS Criminal Investigation Voluntary Disclosure Practice are different compliance paths. Streamlined requires non-willful conduct. Taxpayers concerned about willfulness should evaluate the Voluntary Disclosure Practice rather than simply submitting a Streamlined certification.

How many years of returns do I have to file?

A Streamlined submission generally covers the most recent three applicable tax-return years and six applicable FBAR years, but the exact years depend on due dates, extensions, filing history, and the particular international tax issues involved.

Is the Streamlined penalty always 5%?

No. The 5% Title 26 miscellaneous offshore penalty generally applies to qualifying Streamlined Domestic Offshore submissions. Qualifying Streamlined Foreign Offshore taxpayers receive different penalty treatment and generally are not subject to that 5% miscellaneous offshore penalty.

What if I honestly did not know about the FBAR requirement?

Lack of knowledge can be relevant, but the complete factual circumstances matter. The Streamlined certification addresses whether the taxpayer’s failure resulted from negligence, inadvertence, mistake, or a good-faith misunderstanding of the law rather than willful conduct.

Should I file my missing FBAR before deciding whether to use Streamlined?

It is generally prudent to determine the appropriate compliance strategy first. Filing a delinquent FBAR or amended return changes the taxpayer’s filing record and does not by itself establish eligibility for Streamlined penalty treatment.

Can I use Streamlined if I am already under IRS examination?

The IRS states that taxpayers for whom it has initiated a civil examination of a return for any taxable year are not eligible to use the Streamlined procedures, even when the examination is unrelated to foreign financial assets.

Does Streamlined guarantee that the IRS will never examine my returns?

No. Streamlined submissions do not receive an automatic closing agreement simply because they were filed through the procedure. A taxpayer should submit complete and accurate returns, reports, calculations, and certifications.

Can Streamlined cover Form 8938, Form 5471, Form 3520 or Form 8621 problems?

Potentially. A Streamlined submission can involve international information returns in addition to amended income tax returns and FBARs. The required forms depend on the taxpayer’s particular foreign assets, ownership interests, transactions, trusts, gifts, investments, and income.

Official IRS Resources

For current administrative rules and procedural requirements, taxpayers should consult the IRS’s current guidance, including:

• IRS — Streamlined Filing Compliance Procedures
• IRS — U.S. Taxpayers Residing in the United States
• IRS — U.S. Taxpayers Residing Outside the United States
• IRS — Options for Taxpayers With Undisclosed Foreign Financial Assets
• IRS Criminal Investigation — Voluntary Disclosure Practice

This page provides general information and does not determine whether any particular taxpayer qualifies for the Streamlined Filing Compliance Procedures. Eligibility and filing requirements depend on the taxpayer’s individual facts and applicable IRS procedures.