Is Making an IRS Streamlined Disclosure the Best Option or Not

Is Making an IRS Streamlined Disclosure the Best Option or Not

Is an IRS Streamlined Disclosure the Best Option?

For a majority of U.S. Taxpayers (living abroad or in the U.S.), when they are out of compliance for failing to report various foreign accounts, assets, investments, and/or income to the U.S. Government — and are non-willful — they will qualify to make a streamlined disclosure to the Internal Revenue Service and limit or possibly even avoid international information reporting penalties. And, even though taxpayers may qualify for other versions of offshore disclosure, in general, the IRS streamlined disclosure is a great option for taxpayers. It allows the applicant to submit the documentation  — along with a signed certification — and while they do not receive a closing letter similar to the IRS Voluntary Disclosure Program, the matter is resolved. Even though the IRS can come back and try to audit the taxpayer after the fact, the chance is relatively small. And even if they are audited, the IRS has a higher burden than, if for example, the taxpayer did not submit a streamlined disclosure. But, sometimes a Streamlined Disclosure is simply not the best option. Let’s look through some of the scenarios and alternatives for taxpayers who may not qualify or are not eligible for the streamlined disclosure.

Taxpayer is Willful

An applicant must be non-willful to qualify for making a streamlined disclosure. Therefore, if the taxpayer is willful (or not comfortable certifying under penalty of perjury that they are non-willful), then they are not eligible for the streamlined procedures. Instead, taxpayers in this type of situation who want to be compliant with U.S. tax law would submit to the IRS (Offshore) Voluntary Disclosure Program– which is an alternative program for taxpayers with unreported offshore accounts but do not qualify as non-willful.

Taxpayer Did Not File Original Tax Returns (Domestic Offshore)

For taxpayers who want to make a streamlined disclosure to the IRS as a U.S. resident, they must have filed original tax returns to qualify for the program. In other words, if the taxpayer did not file timely original returns, then typically they do not qualify to make a streamlined disclosure — unless they qualify as a foreign resident and therefore are eligible for the foreign version of the streamlined offshore disclosure.

There is already an Active IRS Audit or Examination

If a Taxpayer is already under audit or examination, they are ineligible to submit to the streamline procedures. Any unreported foreign accounts, assets, investments, or income are technically supposed to be handled during the audit or examination.

Are there Alternatives to Making an IRS Streamlined Disclosure?

Whether or not a taxpayer is eligible to make an IRS streamlined disclosure, for one reason or another they may choose a different option. Let’s look at some of the different options or alternatives to making an IRS streamlined disclosure.

Reasonable Cause

When a taxpayer can show that they had reasonable cause and not willful neglect, they can typically qualify to make it reasonable cause submission either affirmatively before a penalty is issued — or after a penalty was issued to abate a penalty that has already been assessed.

Delinquent FBAR (DFSP) or Delinquency Procedures (DIIRSP)

For some taxpayers who may not have any unreported income, the delinquency procedures are a great alternative to making a streamlined disclosure. Under the Delinquent FBAR Procedures, Taxpayers may automatically qualify for a penalty waiver — whereas taxpayers who qualify for the Delinquent International Information Return Submission Procedures may also receive a penalty waiver, but after November 2020 the IRS has become a bit more aggressive in assessing penalties for taxpayers under DIIRSP.

Seeking to Expatriate from the United States?

For taxpayers who are considering expatriating, there is a special program referred to as the Relief Procedures for Certain U.S. Citizens that they may qualify for. In order to be eligible for this program, the taxpayer has to check off several boxes — and oftentimes, taxpayers will not qualify for the program either because their asset level is too high or they possibly filed returns in prior years. Taxpayers must be very cautious before submitting to the relief procedures — to ensure they qualify.

* For taxpayers who want to expatriate, there are other options available.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

This resource may help taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.