Late to file?

If you are a US citizen or a greencard holder (i.e. you are a lawful permanent resident of the US), you are required to report, and potentially pay tax, on your worldwide income to the Internal Revenue Service (IRS) each year.

IRS Disclosures are still required even if you reside abroad and you have filed and paid taxes in your country of residence. The IRS has the power to levy a variety of civil penalties for failure to file and pay taxes. In more severe circumstances criminal penalties can also be levied.  Becoming compliant with the IRS can be achieved in several ways and the appropriate method will depend on the client’s specific circumstances.

Aside from making disclosures with an accompanying “reasonable cause” statement to mitigate penalties there are two programmes offered by the IRS.  These are the Streamlined Foreign Offshore Procedure and the Streamlined Domestic Offshore Procedure.

Streamlined Foreign Offshore Procedure

If you live outside the US, have failed to report income to the IRS, and the failure was unintentional, you may be able to use the IRS’s ‘Streamlined Foreign Offshore Procedure’ to become compliant with your US taxes.  The advantage to using this procedure is the avoidance of paying civil late filing and late payment penalties both in respect of tax returns and reporting forms.  Often, statutory penalties for late filing of reporting forms start at USD10,000.

If a client is eligible and wish to use this Procedure they will be required to:

  • Obtain a Social Security Number (SSN) if they do not already have one
  • File US income tax returns (and informational returns if appropriate) for the past 3 tax years
  • File FBARs (Reports of Foreign Bank and Financial Account Forms) for the past 6 tax years
  • Provide a full explanation to the IRS of why you have not filed historically and sign the certification to confirm their failure to file was not deliberate

We can help assess eligibility under this procedure and prepare the necessary forms.

Streamlined Domestic Procedure

If a client has failed to report their foreign income to the IRS and the failure was unintentional, but they are not eligible to use the IRS’s ‘Streamlined Foreign Offshore Procedure’ because they either live in the US or have spent a significant amount of time there, they may be able to use the ‘Streamlined Domestic Procedure’.  This will enable a taxpayer to become compliant with their US taxes and pay limited penalties.

If using this Procedure, a client will be required to:

  • Obtain a Social Security Number (SSN) if one has not already been issued
  • File US income tax returns (and informational returns if appropriate) for the past 3 tax years. In the case of individuals who wish to expatriate, they may wish to file 5 years of tax returns instead.
  • File FBARs (Reports of Foreign Bank and Financial Account Forms) for the past 6 tax years
  • Provide a full explanation to the IRS of why they have not filed historically and sign the certification to confirm their failure to file was not deliberate

We can help assess eligibility under this procedure and prepare all necessary forms.

We’re here to help

The above IRS Disclosures may appear daunting, but we will provide advice and guidance through every stage of the process to ensure our clients are fully compliant as quickly as possible.  We can also help plan for future years to avoid similar issues in the future.