Understanding the Eligibility Requirements for the Streamlined Foreign Offshore Procedures

To ease the process for qualifying tax applicants, new changes have been introduced to the Streamlined Foreign Offshore Procedures. A 0% offshore penalty by default is a key benefit of the new program. In this article, we discuss about the expanded streamlined filing compliance process and the steps to find whether the taxpayer qualifies for the new streamlined program.

The Modified Streamlined Foreign Offshore OVDP Eligibility
•    Must be individual taxpayers, including estates of individual taxpayers

•    Taxpayers must certify that the failure to report foreign assets, and pay all tax on income from those assets was not a result of willful conduct.

•    Will not be eligible to use the streamlined procedures, if the IRS has initiated a civil examination or criminal investigation of a taxpayer's information returns for any tax year.

•    “Quiet Disclosures” made outside of the OVDP still eligible for streamlined procedures but any penalty assessments previously made will not be removed.

•    Must have any one of the valid Taxpayer Identification Number (TIN) - SSN or ITIN or an ITIN application for some cases.

•    Taxpayers who, AFTER July 1, 2014, submitted their intake letter/attachments cannot benefit from this new program. This is a huge thing for those who have filed a pre-clearance previously. If you want to get qualified for the Streamlined Procedure, just stay away from OVDP intake letter or disclosure. If you do, the OVDP opt-out will become the only option for you to reduce offshore penalties. Those who have submitted an OVDP submission prior to July 1, 2014, may qualify for the Streamlined Procedures pursuant to transitional rules under OVDP.

 
Non-Residency Requirements
•    Non Residency requirement for U.S. citizens and lawful permanent residents: In any one or more of the three recent years for which the tax return deadline has passed, the individual did not have a US abode and he or she was physically present outside the U.S. for minimum 330 days. "Abode" refers to one's home, habitation, or place of dwelling but it does not mean the same as "tax home".

•    For individuals who are not U.S. citizens or lawful permanent residents: If, in any one or more of the last 3 years for which the U.S. tax return due date (or a properly extended due date) has passed, the individual did not meet the "substantial presence test". For more details about this test, see IRS Publication 519.

Streamlined OVDP Procedures
1. For each of the past 3 years for US tax return due date has passed:

•    If the U.S tax return filing was not done earlier, submit a new delinquent tax return using U.S. Individual Income Tax Return Form 1040, along with other required returns even though these information returns would normally be filed separately.

•    If tax return has been filed previously, submit a complete amended tax return (using Form 1040X) together with the required information returns. Normally, information returns would be submitted separately had the taxpayer filed an accurate original return.

•    Include “Streamlined Foreign Offshore” written in RED at the top of the first page of each amended or delinquent tax return and at the top of each information return. This will ensure the returns get processed under special procedures.

Certification of non-willful conduct
Willfulness requires more than checking the incorrect or no box on a Schedule B. Willfulness is not just about non-filing of FBAR. It is highly recommended to get a legal advice from an OVDP Attorney on your non-willfulness or willfulness.

File delinquent FBARs
File delinquent FBARs (FinCEN Form 114) for each of the past 6 years for which the FBAR filing due date has passed with explanation "Streamlined Filing Compliance Procedures".