“Streamlined.” Sounds fast. Something that is streamlined even looks fast. Gotta love that streamlining thingy, regardless of the who, what, where, how, and why. Yes sir – in this day and age of motion and speed, one can’t go wrong with anything that is streamlined.
“Foreign” and “Domestic.” Exact opposites. Yet the two most often appear together, like salt and pepper. Especially in government – “… against all enemies, foreign and domestic,” appears in most official oaths of office or positions of government service. Together, they’re all-encompassing; separately, they are most discreet, even in governmental issues.
“Offshore.” Somewhere, out there. Not being here, onshore, it’s a way of locating people, places, and things that are not contained by the natural boundaries formed by the shorelines of seas and oceans. In practical terms, it refers to objects on the “other side” of those shorelines.
“Procedures.” Methods; ways and means. If there’s a task to be accomplished, these are followed in order to successfully arrive at the desired conclusion in an efficient and timely manner. “Proper” procedures almost always guarantee success, if followed.
Put these four selections together (we’ll let the selection of “domestic” rest peacefully in this article), and you have today’s topic:
STREAMLINED FOREIGN OFFSHORE PROCEDURES
In continuing last week’s article, you dear readers who live outside of the U.S. are going to find that there is an easy way to “become current” with U.S. Income Tax and financial reporting responsibilities. You’ll also find that I won’t throw a lot of tax theory or tax law precedent or other fluff into the article.
The way a taxpayer with delinquent returns become “current” is to turn himself or herself in to the IRS, throwing him/herself on the mercy of the government for their past misdeeds. Period. I know, that sounds pretty drastic and cruel, but it’s really not as bad as it seems.
Of course, the more delinquent returns and reports you have, or the more you not filing them tends away from forgetfulness and closes in on malice and intent, the more difficult will be the process for you to become current. No one said it was easy, but then no one said it was impossible, either.
For those of you who may be thinking, “Well, since there are so many delinquent tax returns in my stack and no one has bothered me about them yet, maybe I can squeeze on by until the statute of limitations runs out,” here’s a surprise: the clock that counts off the time stipulated by the statute of limitations regarding the filing of income tax returns doesn’t start ticking until the tax return is filed. So that stack you have is one that will always be a problem, regardless of any incantations of “statute of limitations” pleas.
For those taxpayers who are not criminally bent when it comes to income taxes – those who didn’t file out of pure intent or malice – there is this easier way to get current. And it goes by the title of this section.
THE NUTS & BOLTS OF IT ALL
I said I wasn’t going to load you down with a lot of legalese and tax mumbo-jumbo, so here’s the deal – plain and simple: the nitty-gritty.
Lets use, for an example, a taxpayer (T) (a taxpayer in name only, not in activity) who lives overseas and hasn’t filed a tax return or required report in, say, 10 years time. (That’s a long time to go without filing tax returns and not being caught.) For some reason unnecessary to the example, T wants to change his errant ways, become current with his tax return and reporting responsibilities, and continue to file his required returns and reports from that day forward.
T has the following delinquent returns: 10 years-worth of income tax returns and 9 years-worth of foreign financial account reports (FBARs). While penalties for missing income tax deadlines can be stiff, they are nowhere near as draconian as those for not filing FBARs if required to do so. So, it’s in T’s best interest to get current and stay current.
T goes to a tax professional for help (a licensed CPA, Enrolled Agent with the IRS, a tax lawyer, etc.). He explains that he has those delinquent returns and want to become current. He tells the professional that he didn’t intend to skip filing his reports and returns. In fact, he really wanted to but was fearful of what would happen if he did. As often happens, things get put off, and then put off further, then become routine. There’s no hint of negligence nor is there any hint of intent to evade or defraud the tax system.
The tax professional informs him that he is eligible to become current by employing the streamlined foreign offshore procedures – a modified program for “turning oneself in.” By employing these procedures, T will become current upon the acceptance of his application. That application is a simple form, with which T certified that he has:
- Filed the delinquent or amended tax returns, including all required informational returns, for each of the most recent 3 years for which the U.S. tax return due date (as extended) has passed;
- Pay all income taxes plus all interest accrued that are due for each of those three years, computed in those tax returns;
- State that he failed to report income from one or more foreign financial assets during those three years;
- Certify that he meets the non-residency requirements for the Streamlined Foreign Offshore Procedures;
- Further certify that he meets all other eligibility requirements for these procedures;
- Filed the delinquent FBARs for any of the last 6 calendar years that are delinquent;
- Agree to retain all records related to income and assets during the period covered by the delinquent income tax returns until after 3 years from the date of his certification;
- Additionally agree to retain all records related to his foreign financial accounts until 6 years from the date of this certification;
- Certify that his failure to report income, pay tax. and submit returns and reports (including FBARs) was due to non-willful conduct (i.e., conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of law;
- State that he understands that the IRS could open investigations into fraud or more severe charges that could result in civil and criminal penalties if the IRS receives or discovers evidence of wilfulness, fraud, or criminal conduct; and
- Provide specific reasons for his failure to report all income, pay all tax, and submit all required information returns (including FBARs).
That’s it. All contained on one two-sided form (Form 14653). All T needs to do is everything he is certifying that he has done (filing this form being one of the final steps to be taken), complete the certification form, sign and date it, and file it.
Upon receiving word of its acceptance, T is considered to be “current.” He filed 3 out of 10 delinquent income tax returns – 7 were completely forgiven without question. He only paid tax and interest on the tax – no penalties, no interest on penalties, nothing else – for those three years. Anything he may have otherwise owed is forgiven.
He filed 6 out of 9 FBARs – 3 were completely forgiven. What a deal! It sure beats the other way – going back to the last tax returns and reports you have filed that are in the IRS’ records, and reconstructing every year, computing taxes, interest, penalties, etc.
If you know someone who might benefit from this program, let him or her know and have them get in touch with a tax professional. It’s great not being delinquent. I’m current!