- 1 Simplified Tax Reporting Procedures For Foreigners Outside US
- 2 Do You Qualify as Non-Willful?
- 3 Foreign Residency
- 4 Substantial Presence Test
- 5 1040 vs 1040-NR
- 6 You Can File Original Returns
- 7 FEIE and FTC
- 8 Complete Penalty Waiver
- 9 Current Year vs Prior Year Non-Compliance
- 10 Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
- 11 Golding & Golding: About Our International Tax Law Firm
Simplified Tax Reporting Procedures For Foreigners Outside US
For taxpayers who are considered foreigners and reside outside of the United States, the Internal Revenue Service offers simplified procedures to assist taxpayers with safely getting into compliance. Specifically, the program is referred to as the Streamlined Procedures for non-US residents or foreigners. These procedures allow taxpayers to submit three years of amended (or original returns), as well as all of the accompanying international information reporting forms such as IRS Forms 5471 and Form 3520, as well as six years of FBAR (Foreign Bank and Financial Account Reporting) to safely get into compliance. In accordance with the simplified IRS tax filing and reporting procedures, the Internal Revenue Service does not require foreigners to make any penalty payment for missed reporting. While taxpayers may still have a US tax liability they may be able to avoid US taxes by utilizing the Foreign Earned Income Exclusion as well as Foreign Tax Credits for taxes already paid abroad. Let’s take an introductory look at how the simplified IRS reporting procedures for foreigners outside the United States work.
Do You Qualify as Non-Willful?
You must qualify as non-willful to be eligible for the Streamlined Procedures. While there is no bright-line test to determine willfulness from non-willfulness, there are various factors taxpayers can use to assess and evaluate their offshore amnesty options. Taxpayers should be careful before certifying under penalty of perjury that they are non-willful since the IRS does go after willful taxpayers who try to submit to SFOP.
When a person qualifies as non-willful and is either a US Citizen or Lawful Permanent Resident, they may qualify for the Streamlined Foreign Offshore Procedures if they meet the residence requirement. In order to qualify, the taxpayer must have been residing outside of the United States for at least 330 days in any one of the three compliance years.
Substantial Presence Test
If the taxpayer is neither a US Citizen nor a Lawful Permanent Resident, they may still qualify for the Streamlined Foreign Offshore Procedures if they can show they did not meet the Substantial Presence Test in any one of the three years in the compliance years. The Substantial Presence Test is a ‘counting days test’ to determine US person status (exceptions, exclusions, and limitations do apply).
1040 vs 1040-NR
In order to qualify for the Streamlined Foreign Offshore Procedures, the taxpayer must be a US Person and/or required to file a Form 1040. Even though it is not expressly provided for in the instructions, the IRS has rejected applications solely because the taxpayer sought to amend 1040-NRs and not 1040s.
You Can File Original Returns
Unlike its Streamlined Domestic Offshore Procedure counterpart, with Streamlined Foreign Offshore Procedures taxpayers can file original tax returns. Thus, even if a taxpayer missed filing original returns, they can still qualify for SFOP.
FEIE and FTC
When a taxpayer applies for Streamlined Foreign Offshore Procedures, they can claim the Foreign Earned Income and Housing Exclusions as well as Foreign Tax Credits. This may reduce or even eliminate any tax liabilities for prior year returns.
Complete Penalty Waiver
One of the key benefits of the Streamlined Foreign Offshore Procedures is that there is a complete penalty waiver. Thus, all the terrible articles you may have come across about $10,000 per account/per year, or other penalties do not apply when the taxpayer qualifies — and is approved for — the Streamlined Foreign Offshore Procedures.
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 that 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.
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.