Streamlined Tax Amnesty
How does the streamlined tax amnesty program work?
Are there any fines or penalties?
Darryl is an experienced EA who has expertise in the Streamlined Offshore Filing procedure.
The IRS’ Streamlined Tax Amnesty Program helps those who are late to filing or have filed incorrectly to file overdue or amended tax returns. This is a very generous programme that will get you into tax compliance without the penalties.
Who is the amnesty tax program for?
- US citizens living overseas who have not filed tax returns, who were unaware of their tax filing requirements. It is possible for Green Card Holders to use this programme as well, if they are still legally permanent residents of the US and meet the criteria.
- US citizens or Green Card Holders who have filed incorrectly, not understanding the full extent of their conduct in a foreign country, needing to amend their returns.
For those who left the US a long time ago (say, 10, 20 or 30 years ago), incorrect online advice may have said that they didn’t have to file. Every client will be looked at case by case, but if all of the criteria is met, then these people can file.
If you have been filing incorrectly, it is often the result of being a significant shareholder of a company and not filing anything for this, filing a US tax return but only including US income, or unintentionally owning a company, partnership or trust. Those with cases like this will need to file amended tax returns for the past 3 years.
What criteria do I need to meet to use the amnesty tax program?
In at least one of the most recent three calendar years (January 1 to December 31), you were living outside of the US for at least 330 full days. For all three of these years, your tax returns need to be overdue. Even if you spent two of these years in the U.S. receiving U.S. income on these returns, you can still go through the amnesty programme.
Your eligibility to use the program does not depend on your income or the length of time that you have not filed for. Simply, to be eligible, you must meet the non-residency requirement and prove unintentional compliance through a good faith misunderstanding of the law. Your failure to file, report income or pay taxes must be a result of non-willful conduct.
The residency requirement is not about where you physically were present, but where your tax home has been. For those 330 full days, your tax home must have been outside of the US.
Does the streamlined programme require me to explain why I have failed to be tax compliant?
When going through the amnesty program you will be required to provide a statement of fact (also known as an ‘offshore certification’) with an explanation as to why you did not file or pay. Be careful not to excessively disclose information as this can lead to added questions and complications. You will also need to make a written promise that you will file on an ongoing annual basis.
Will I have to pay penalties or fines if I use the amnesty program?
Through the amnesty program, you will avoid all of the following penalties if all criteria are met:
- Failure-to-file or failure-to-pay penalties
- FBAR penalties
- Information return penalties
- Accuracy-related penalties
- Negligent FBAR penalties
- Criminal penalties
However, you will owe late interest for the previous 3 years, even if you are filing an amended return.
If you have tax due prior to the previous 3 years (2017, 2018 and 2019), this will not have to be paid if you are accepted by the IRS and qualified into the amnesty program. Effectively, you are legally ‘off the hook’ for anything you owed before the previous 3 years.
What are the main components of the amnesty program?
- 3 previous calendar years’ worth of tax returns – either the necessary information for overdue returns or already filed returns collected to be amended.
- Previous 6 years of overdue FBARs (Foreign Bank Account Reports) for normal bank accounts outside of the US.
- Statement of non-willful conduct (Form 14653).
For overdue tax returns, file Form 1040. For re-submission of an amended and accurate return, file form 1040X. At the top of the first page of either form, you must write in red “Streamlined Foreign Offshore” to ensure your returns are processed through the special procedures.
Will filing my FBARs affect what I have to pay to the IRS?
All that gets reported when filing your previous 6 years of overdue FBARs is the information on the bank, the address, whether the account was singularly held or jointly held and the bank account number. In terms of figures, only one number is translated into USD and reported on the form – being the highest balance at any point of time in the year. You should not be concerned if the money in your account spiked for a short amount of time, as it will have no impact as there is no tax to pay.
Can I apply for the child tax credit refund while using the amnesty program?
If you have one dependent child reported on your tax return, and this dependent is child is qualified for child tax credit purposes, you can have a refundable credit of up to $1,400. Foreign tax payments you’ve made can offset your US tax liability to 0. Because your net tax liability is already 0, this credit refund is real money given to you, not just a credit on your IRS account.
Generally speaking, it is possible to apply for the child tax credit refund while using the amnesty program, but the judgement will be made on a case by case basis. If you are eligible, you can get this credit refund as real money in your pocket.
Who can’t use the streamlined amnesty program?
Do not wait for the IRS to contact you first. If the IRS has started an investigation or sent a document to you, then you most likely won’t be able to say your non-compliance was unintentional. Receiving any notice from the IRS will most likely disqualify you from being able to use the amnesty program.
The streamlined amnesty program is also a temporary program that the IRS can pull whenever – so use it sooner rather than later. There are no deadlines because the returns are overdue, so you just need to gather all of your information in one place and then it is just a matter of completing and filing the returns.