On January 7, 2016, the IRS made two updates to the Streamlined Filing Compliance Procedures.
First, the IRS added Frequently Asked Questions 13, 14, and 15 to the Streamline Filing Compliance Procedures (Domestic). Correspondingly, the IRS added those same questions to the Streamline Filing Compliance Procedures (Foreign) – questions 6, 7, and 8.
These questions and answers detail the following:
- What facts taxpayers need to provide in their non-willful certification statement
- What to do if a joint spouse refuses to sign off on the amended returns and certification needed for a Streamlined Filing Compliance Procedures
- Whom to call if there are questions about the forms
The most interesting out of these three are the facts or issues that taxpayers need to address in their non-willful statements. The IRS indicates the following topics are most germane:
- “Specific reasons, whether favorable or unfavorable…that are relevant to the failure to report all income, pay tax and submit FBARs”
- Source of funds
- Account contact
- Schedule B check the box facts
- Foreign entity disclosure
- Reliance on a professional advisor
- If married, then provide individual reasons for each spouse
In regards to the first topic, as a practitioner I can say that from the IRS point of view what they do not want is for taxpayers to raise facts that are only favorable to their position. The IRS wants a full accounting of the facts and circumstances. This is in alignment with the history and policy under IRS Voluntary Disclosure Practice. Taxpayers may argue that this violates the Fifth Amendment right against self-incrimination. The typical IRS response to this argument is that if you are worried about self-incrimination the taxpayer should probably utilize the Offshore Voluntary Disclosure Program (OVDP) instead of the Streamline Filing Compliance Procedures. As a practitioner, I would advise that any taxpayer who wants to use the Streamline Filing Compliance Procedures should have a tax attorney familiar with both IRS Voluntary Disclosure Practice and international tax issues draft the factual non-willful certification statement or at a minimum review the certification for potential liability. Finally, please note that the topics addressed above are not an exhaustive list. As a practitioner, I generally utilize 27 factors when determining whether a taxpayer is willful or non-willful. Additionally, I address each taxpayer’s facts separately during a joint disclosure. I also address each individual tax year for both income (when applicable) and FBAR issues.
The second change comes in the Form 14563 used for Streamline Filing Compliance Procedures (Foreign). The revised form now includes two new sections:
- Taxpayer is a U.S. Citizen or Lawful Permanent Resident (Green Card Holder)
- Taxpayer is not U.S. Citizen or Lawful Permanent Resident (Green Card Holder)
The taxpayer must now choose one of these two sections and complete the required information. If the taxpayer is a citizen or green card holder, then the taxpayer must list each tax year filed in the income tax disclosure period. Follow that, the taxpayer must indicate whether or not they qualify for the physical presence test by checking “yes” or “no” next to each tax year.
If the taxpayer is not a citizen or green card holder, then the taxpayer must attach a computation sheet for the income tax disclosure period showing that the taxpayer does not meet the substantial presence test.
Failure to abide by these procedures will lead to a rejection of the Streamline Filing due to incompleteness. Taxpayers should tread carefully when providing this information and take caution to make sure that this information matches the information disclosed on their tax return.
As with all things tax, you should not rely on this article as tax advice. Please conduct your own personal due diligence and when in doubt, consult with a Federally Authorized Tax Practitioner about your particular facts and circumstances.