So many expats don’t realize they have a continued US tax filing obligation until the deadline has passed—or many deadlines have passed. Having a citizenship-based taxation system rather than a residency-based taxation system is uncommon. Only the US and Eritrea tax their citizens’ worldwide income, no matter where they now live or where the income was earned. Due to the lack of widespread awareness about citizenship-based taxation, the IRS has offered amnesty programs for expats in certain situations, and one of the most favorable to use is the Streamlined Filing Procedures.
The Streamlined Filing Procedures were created in order to encourage expats who are late on their taxes to get caught up voluntarily. Expats who are many years behind can come forward, submit the required filings, and not be subject to any penalties. To use the procedures, expats must submit three years of Federal Tax Returns, six years of FBARs (Foreign Bank Account Reports), and Form 14653. Form 14653 certifies that expat did not know about the filing requirement, and lists all the details pertaining to the late filing.
First of all, you must have been “non-willful” in your late filings. This means that the IRS cannot find evidence that you knew you were supposed to file taxes and willfully did not. Next, you must file the returns and the FBARs, even if you did not meet the thresholds. Typically, if you have at least $10,000 in all your bank accounts in total at any time during a tax year, you must file FBAR. But when using the Streamlined Filing Procedures, you’ll have to file six years of FBARs even if you never hit the threshold at all while living abroad. Lastly, expats who have already been contacted by the IRS to say that they are under review will not be able to use this amnesty procedure. That’s because the point is to encourage taxpayers to come forward voluntarily, and not to offer them a way out of penalties after the IRS has caught them.
The IRS offers the Streamlined Filing Procedures on a temporary basis. That means, at any point, they could terminate the program. The IRS has recently concluded another amnesty program, called the OVDP (Offshore Voluntary Disclosure Program) that was created to help willful non-filers voluntarily come forward to get caught up on their taxes. The same thing can—and will—happen with the Streamlined Filing Procedures at some point in the future.
The IRS has mentioned that the Streamlined amnesty program will be available until more people have been made aware of their filing requirements, and everyone has had a chance to use it, so there is no set period of time that it will remain open. Further, the IRS has enacted a series of compliance campaigns that specifically target expats who are not caught up on their taxes. This means that more and more expats are being contacted by the IRS each day, and so their eligibility to use the Streamlined Filing Procedures will be gone.
The best course of action an expat can take is to get started on their taxes today. If they have not been contacted by the IRS, and they didn’t know about their tax-filing requirement, they can use the Streamlined Filing Procedures to get caught up without facing any penalties. Working with a tax service that specializes in expat issues is crucial so that expats can be sure they receive every exclusion, deduction, and credit available to them.