STOROSZKO & ASSOCIATES, US TAX SERVICES - Streamlined Tax Amnesty FAQ

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Streamlined Procedure FAQ

I just found out that I need to file US taxes and want to get up to date. Should I contact the IRS beforehand and let them know I will be sending in my forms soon?

Do NOT contact the IRS in any sort of pre-emptive move. In the very odd case that they get in contact with you, let them know that you are working on compliance with us. Our usual turnaround is generally faster than any deadline they'll impose on you, anyway.

The best first contact to make is a completed tax return.

I am unable to open the Streamlined Non-Resident Questionnaire from the link in Final Instructions http://www.irs.gov/pub/IRS-pdf/f14438.pdf

The problem lies on the IRS side. The current form http://www.irs.gov/pub/IRS-pdf/f14438.pdf is intended to be opened in the latest version of Adobe Reader (you can't view it inside your browser).

Download the required program from www.adobe.com/products/acrobat/readstep2.html

Right click and save the PDF file to your desktop

Open the file from your desktop - not from inside your browser.

What happens if you analyze my situation and determine that the Streamlined Procedure won't be an option - what can I do in that case?

In many cases not meeting all conditions for the Streamlined Foreign Offshore Procedure (i.e. having been previously contacted by the IRS) - is not a reason not to apply. There is no downside to applying for the Streamlined Foreign Offshore Procedure. If your application is rejected you will not be granted a waiver of penalties. However, you still can establish the Statute of Limitations. And - you do not give up the opportunity to get waiver of penalties if the IRS determines the facts presented on the Certification Letter satisfactory to prove the non-voluntary nature of tax delinquency.

If you happen to have factors that cross out any chance to be accepted into the program (i.e. not meeting the non-residency qualification test) - then we will help you file outside of the procedure under the same scope of filing years. As opposed to the Streamlined Procedure, you will not automatically get amnesty from FBAR penalties - however, in most cases IRS does no apply penalties as long as you file voluntarily and provided full disclosure of your financial situation.

If my tax liability exceeds $1,500 for any of the three years, am I still eligible for the Streamlined Procedure?

In a word - YES.

The $1,500 per year tax limit is no longer a risk factor.

Can a married couple file together for the Streamlined Procedure? Is the fee the same for one person or married couple?

Yes - as long as they file jointly.

Price is the same as for individual SP. However - if they have separate foreign accounts and need duplicate set of FBARs, this will add an extra $75 per FBAR form.

I mailed my return to the IRS some time ago but have not received any word from them. How long do they usually take to respond in the case of Streamlined Procedure and back taxes?

Processing of Streamlined Procedure submission normally takes between 90 to 120 days. You may, however, experience delays due to the IRS perennial high backlog.

If you owed tax and sent full payment with the returns, then you will receive an additional bill for interest penalties if they were not included with the original payment. This is a good sign indicating that returns were processed.

If you did not owe tax - you will not hear from the IRS. The IRS does not send letters with the confirmation of acceptance. If you don't hear from the IRS for 3 months - this is also a good sign that your application was accepted and your tax account is now in good standing.

You can check the status of your IRS tax account online: http://www.irs.gov/Individuals/Order-a-Transcript.

Most state tax departments also offer this option. For example, if you filed a NY state return you can create an account at http://www.tax.ny.gov/online and check your account status there.

How will the IRS inform me about my Streamlined Procedure filing?

IRS no longer sends the Streamlined Program acceptance letters (they have done so in the past). So the best news you can have is not hearing anything from them.

If IRS needs additional documentation, the request will arrive approximately within 2 months after your filing.

What is the difference between OVDP and the SP programs?

IRS has two programs for taxpayers who are currently non-compliant with tax returns and FBARs - Offshore Voluntary Disclosure Program (OVDP) and the Streamlined Procedure (SP). Most attorneys will recommend the OVDP while tax practitioners to favor the SP. We believe that most clients are significantly better served by the Streamlined Procedure.

OVDP - which does require a lawyer's assistance, means a huge expense for the client. It involves filing 8 years of tax returns, paying tax and penalties due for all years, paying FBAR civil penalties, and paying lawyer fees for OVDP assistance. In other words - it's a much better deal for the attorney involved than the client.

Streamlined Procedure, on the other hand, only involved filing 3 years of returns and 6 years of FBARs. Most importantly - the fees are automatically waived. The cost involved is also significantly cheaper (attorney cost alone for OVDP starts at $10,000 - on top of the tax preparation fees).

The only occasion where OVDP is preferred, is when the IRS has already started a civil investigation. In such case OVDP serves to keep the consequent penalties at bay.

I am up to date with my tax returns but I have not filed FBAR for ALL my non-US accounts -- what are my options?

The US treasury requires that US Citizens/Green Card Holders remain current and compliant with FBAR requirements for the last 6 years. Your filing option depends on whether you had non-reported interest from foreign bank accounts and whether you are subject to additional reporting requirements.

If interest from foreign bank accounts was reported on the original returns - File FBAR through the Delinquent FBAR Submission Procedure http://www.irs.gov/Individuals/International-Taxpayers/Delinquent-FBAR-Submission-Procedures without amending tax returns. Cost - $450 for 6 years of filing (up to 5 accounts per year).

If interest from accounts was not reflected on the tax returns, file amended returns and FBAR reports through the Streamlined Foreign Offshore Procedure: http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-Outside-the-United-States. Cost - $1300 (or $1500 for the premium package) + $360 (3 years of amended returns, discounted by 20%) and $300 for Streamlined Certification Letter.

If form 8938 (Statement of Specified Foreign Assets) aka FATCA was required, but not produced, file amended returns, FATCA and FBAR reports through the Streamlined Foreign Offshore Procedure: http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-Outside-the-United-States. $1,500 for the SP + $360 ($150 X 3 * 20% discount for multiple years) for FATCA (8938) and $300 for streamlined certification letter.

I'm up to date with my tax returns, but I did not file 5471 for my foreign corporation. What should I do?

There is a special program for this - the Delinquent Informational Return Program. This program is also utilised for failure to report other informational returns (ie - Foreign Trust 3520-A).

Participating in this program would entail 3 amended returns for each of the past 3 years (assuming you have not filed the informational return for all three years), and forms 5471 (assuming that is the missing form) for each year. Finally, a reasonable cause statement must be attached.

The potential for filing FATCA (form 8938) if the balance on the company accounts (previously unreported) puts the taxpayer over the threshold.

If you are at least a 10% shareholder in a foreign corporation, you have a requirement to file 5471. Failure to do so can carry very stiff penalties.

Requirements:

have not filed one or more required international information returns,

have reasonable cause for not timely filing the information returns,

are not under a civil examination or a criminal investigation by the IRS, and

have not already been contacted by the IRS about the delinquent information returns

Pricing - in addition to fee for form 5471 (see below)

$150 for form 1040X if there was no income distribution from the corporation at all and the 1040 does not need to be changed

$150 for form 1040X if there was income distribution from the corporation reported as salary (or dividends) but form 5471 was not filed

$550/$650 (premier package) if there is unreported income distribution from the corporation, which requires re-work of the 1040

$550/$650 (premier package) if income from the corporation was reported as self-employment, but this is salary and form 1040 needs to be re-worked

Example:

Joe Smith owns a corporation which is incorporated in Canada. He has failed to report this on form 5471 and has reported this as Self-employment income on Schedule C instead. It would cost him $750 per year to fix (subject to further multiple year discount of 20% for filing 3 years at the same time): $150 for the form 1040X and $600 for form 5471.

Total price for 3 years of corrections would be $750*3 less 20% discount for multiple years = $1,800.

Please see Form 5471 Preparation for further information