Happy Birthday Streamlined Filing Compliance Procedure

The Streamlined Filing Compliance Procedure (SFCP) was “born” six years ago.  Six years ago the IRS publicly announced the SFCP, which has been used by many non-compliant US taxpayers with the disclosure of foreign assets. SFCP has two sub-programs: one for US residents (Streamlined Domestic Offshore Procedures or “SDOP”) and one for non-US residents (Streamlined Foreign Offshore Procedures or “SFOP”). Each program has its own set of specific procedures and eligibility requirements.

The SFCP was designed for taxpayers whose failure to disclose their offshore accounts was “non-willful,” due to a lack of understanding or knowledge of reporting requirements for U.S. persons. Taxpayers are only required to file tax returns for the previous 3 years and FBAR’s for the previous 6 years.

The IRS introduced SFCP in June 2014 for taxpayers who non-willfully failed to disclose foreign assets. Under the SFCP, non-willful conduct is specifically defined as “conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law”.  The most important first step in analyzing whether a taxpayer is eligible to participate in the streamlined procedures is to ascertain whether the taxpayer’s compliance failure, including the failure to file an FBAR, was actually non-willful. The IRS has defined “nonwillful conduct” as “conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.”

It is extremely important that a taxpayer’s eligibility is carefully analyzed because once the SFCP is elected and the taxpayer claims the violations were non-willful. There are possible risk factors that need to be considered and analyzed such as the evidence of willfulness including intent of laws, knowledge and violations. Although filing an SFCP does not automatically select the taxpayer for an IRS audit, the taxpayers is still subject to the possible normal audit selection. The taxpayer needs to be prepared to defend filing a SFCP and be able to demonstrate their non-willfulness.

In our firm’s experience, we have seen great interest and participation by taxpayers in the SFCP program. We have successfully filed hundreds of streamlined submissions for satisfied clients over the years. Taxpayers who have failed to comply with their US tax filing and information reporting obligations should be aware of and seek appropriate legal advice regarding which disclosure program to pursue.

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