The IRS Streamlined Procedure – Ultimate Guide for US Expats

For Americans living abroad, staying compliant with US tax rules can be challenging, especially if you’re unaware of expat filing requirements when you move overseas. Fortunately, an IRS program called the Streamlined Foreign Offshore Procedures, often referred to just as the Streamlined Procedure, can help expats catch up on missed filings without facing penalties. Intended for expats whose non-compliance was unintentional, the program provides a straightforward way to become compliant, avoid potential penalties, and enjoy peace of mind.

In this article, we’ll outline the essentials of the Streamlined Procedure and answer some of the most common Streamlined Procedure questions that expats ask.

What is the Streamlined Procedure?

For many Americans living abroad, it can come as a surprise to learn that they still have to file US taxes. The United States is one of just two countries that tax citizens on worldwide income, regardless of residency. As a result, many expats fall behind on filings due to not knowing that they have to file.

To help expats in this situation, the IRS created the Streamlined Filing Compliance Procedures. Originally intended as an alternative to the more strict Offshore Voluntary Disclosure Program (OVDP), which is now closed, the streamlined program is designed specifically for taxpayers whose non-compliance was unintentional. If an expat qualifies, they can catch up on missed tax filings and unfiled FBARs (Foreign Bank Account Reports – FinCEN Form 114) and avoid penalties. This penalty-free pathway has helped tens of thousands of expats to regain compliance.

How can expats qualify for the Streamlined Procedure?

To qualify for the Streamlined Procedure, your failure to file tax returns from abroad must be considered non-willful. This means you may have been unaware of or misunderstood your filing obligations, as opposed to having willfully avoided filing. As part of the process, you have to sign a statement confirming your non-willful non-compliance on Form 14653.

To be eligible for the Streamlined Procedure, you must have missed filing more than two years of US tax returns for non-willful reasons.

Understanding the IRS definition for willfulness

The IRS evaluates willfulness when determining eligibility for the Streamlined Filing Compliance Procedure. Noncompliance is deemed non-willful if it occurs due to not knowing or misunderstanding the rules, or a genuine mistake regarding expat tax filing requirements. This broad definition allows many people to qualify for the streamlined process, as long as they can demonstrate that their noncompliance was not intentional.

How to file under the Streamlined Procedure

Before you begin, you’ll need to gather the necessary documents. Here are the key forms and requirements:

• Evidence of your income and any other relevant information for the last three years
• Six years of foreign bank and investment accounts statements, so you can ascertain the maximum balance in each account in each year for FBAR filing. You must file an FBAR if the total value of your combined foreign financial account balances exceeded $10,000 at any point during the year.

Completing your tax returns and FBARs

Once you’ve gathered your supporting information, you’ll need to complete your 3 last missed tax returns and up to 6 missed FBARs accurately. This means reporting all sources of income and claiming any relevant foreign tax credits or exclusions, such as the Foreign Earned Income Exclusion (FEIE) or Foreign Tax Credit (FTC).

FBARs must be filed with the Financial Crimes Enforcement Network (FinCEN) online. Each FBAR FinCEN Form 114 must report all of the foreign financial accounts you have a financial interest in or signatory authority over, even if they are jointly owned or associated with a business that you control.

Complete Form 14653 – Certification of non-willful conduct

A critical component of the Streamlined Procedure is Form 14653, which allows taxpayers to certify that their previous failure to file was non-willful. This form requires a written statement explaining why the failure to file occurred. In preparing this statement, expats should focus on providing a clear, honest, and concise account of the circumstances that led to the oversight, such as an incorrect assumption that no US tax filings were needed while living abroad or a misunderstanding of complex filing requirements. Ensuring that Form 14653 is filled out carefully and accurately is essential, as the IRS will review it to assess whether the failure to file was indeed non-willful.

Submitting your documents

Once you have completed all the necessary forms, it’s time to submit them to the IRS. Unlike many electronic filings, the Streamlined Procedure requires you to submit paper-based forms. You will need to mail the three years of back tax returns, and Form 14653 to the IRS office designated for Streamlined Procedure submissions. Make sure to double-check all forms for accuracy and completeness before mailing. Missing or incomplete information can lead to delays in processing, or non-acceptance.

FBAR Forms 114 needs to be filed electronically, not mailed with the rest of the forms, using the FinCEN BSA E-Filing System.

Most expats filing the Streamlined Procedure enlist assistance from an experienced expat tax professional to ensure they get it right.

Expat tax forms

To file under the Streamlined Compliance Procedures, expats need to complete several tax forms to fulfill the federal and FBAR filing requirements, as well as the non-willfulness certification form.

Expat tax forms required for Streamlined Filing include:

• Form 1040 – The US Individual Income Tax Return for the past three years of missed federal tax filings.
• FinCEN Form 114 (FBAR) – Required for six years of Foreign Bank Account Reports if the combined balance of your foreign financial accounts exceeded $10,000 at any point during each year.
• Form 14653 – Certification of Non-Willful Conduct, confirming that previous non-compliance was due to a misunderstanding, oversight, or another non-willful reason.

Additional forms that may apply to expat tax returns include:

• Form 2555 – to claim the Foreign Earned Income Exclusion, to exclude foreign-earned income from US taxation.
• Form 1116 – to claim the Foreign Tax Credit, to offset foreign taxes paid against US tax liability.
• Form 8938 – Statement of Specified Foreign Assets, required under FATCA for reporting foreign-held assets.
• Form 8833 – Treaty-Based Return Position Disclosure, for taxpayers claiming tax treaty benefits.
• Form 5471 – Information Return for US Persons with interests in certain foreign corporations.
• Form 8865 – Information Return for US Persons involved with certain foreign partnerships.
• Form 8621 – Information Return by a Shareholder of a Passive Foreign Investment Company (PFIC), for holders of foreign investment accounts.

Completing these forms accurately is essential for a successful submission.

Do expats have to pay penalties?

No. A key benefit of the Streamlined Filing Procedures is that the IRS waives all late-filing and late-payment penalties, as well as unfiled FBAR penalties, for eligible participants who submit a complete Streamlined filing.

However, it’s important to file through the Streamlined Procedure before the IRS contacts you about any missed filings. If the IRS has already reached out or initiated an investigation, the Streamlined program will no longer be an option.

Although no penalties should be imposed, in case any of the Tax Returns results in a balance due to be paid, interests will need to be calculated over it.

First-time penalty abatement program

If you’ve already received a notice from the IRS to file overdue US tax returns as an expat, you won’t be able to file under the Streamlined Procedure program, but you may still qualify for penalty relief through the First-Time Penalty Abatement Program. This offers a one-time penalty waiver for US citizens abroad, provided certain criteria are met:

• You either had no prior requirement to file a return or had no penalties in the three tax years preceding the year for which you’re requesting relief.
• All required tax returns have been filed, or an extension has been submitted for any outstanding returns.
• Any taxes owed have been paid or arrangements made to settle the outstanding balance.

Seek advice from an expat tax specialist who will be able to help you find the best option for your circumstances.

Can expats amend a streamlined filing submission?

If you realize that you need to amend a return you’ve submitted under the Streamlined Filing Procedure, it’s important to act quickly, as once the IRS has started processing your submission, amendments cannot be made.

What expats can do if they don’t qualify for the streamlined filing procedures

If you don’t qualify for the Streamlined Filing Procedures as you were aware you had to file but didn’t anyway, there are other options you might be able to explore. These include:

• Delinquent FBAR submission procedures: If you filed your tax returns but missed FBARs.
• Delinquent international information return submission procedures: If you’re missed filings can’t be considered non-willful, though penalties may still apply.

While each of these programs allows taxpayers to bring themselves into compliance, it’s important to consult with a expat tax advisor to determine the best path forward depending on your personal situation.

The IRS review process for Streamlined Procedure filings

Once your paperwork has been submitted, the IRS will begin its review. Processing times vary, but expats should anticipate a wait of up to several months. During this time, the IRS will assess your eligibility and review the accuracy of the tax returns, FBARs, and non-willful certification. If any additional information or clarification is needed, the IRS may reach out for further details.

Frequently asked Streamlined Procedure questions expats ask

What should I do if I don’t have complete records for past FBAR filings?

If some FBAR records are missing due to incomplete bank statements or account information, you can contact your bank or financial institution to request copies of the necessary statements or other account details to complete your filing.

Can I offset US tax liability with foreign taxes paid in my host country?

Yes, if you’ve paid taxes in your host country, you may be eligible for the Foreign Tax Credit (FTC). This credit helps reduce US tax liability on foreign income and is especially useful in high-tax countries to prevent double taxation. You’ll need to claim this provision every year on IRS Form 1116.

Are there extra filing steps for self-employed expats?

Self-employed expats may need to file Schedule C to report business income and potentially pay self-employment tax. However, if there’s a totalization agreement between the US and the host country, it may prevent dual Social Security taxation, streamlining tax obligations for self-employed expats abroad. Consult an expat tax professional for detailed advice.

Can I still be audited after a streamlined disclosure?

Yes, audits are still possible after completing a streamlined disclosure. While participating in the streamlined procedure doesn’t increase audit risk, it does not exempt participants from potential audits.

Does using the Streamlined Filing Compliance Procedures increase the chance of an audit?

No, entering the streamlined procedure does not heighten audit likelihood. The IRS does not impose additional audit penalties on taxpayers who are already working toward compliance with offshore requirements.

Will I receive a closing letter after completing the program?

No, the IRS does not issue a closing letter once your submission has been processed under the streamlined procedure.

Additional considerations for expats completing the Streamlined Procedure

Completing the Streamlined Procedure is an important step toward achieving US tax compliance, but it’s also important to consider any state tax obligations that might apply. Certain states have unique requirements that may impact expats, particularly those who maintain assets, financial accounts, or ongoing business interests in the US

Also note that compliance doesn’t end with the Streamlined Procedure. Expats are required to file a timely US tax return every year, even if they qualify for the Foreign Earned Income Exclusion (FEIE) or other exclusions that reduce or eliminate tax owed. Expats who continue to maintain foreign accounts should also remember to file FBARs annually if their combined account balances total over $10,000 at any time during the year. As you can only file under the Streamlined Procedure once, it’s important to keep up with your filing afterwards.

Summary

For US expats who need to catch up on their tax filings, the IRS Streamlined Filing Compliance Procedures provide a great way to regain compliance without facing penalties. The process, while relatively straightforward, can still involve complexities though, especially for expats with significant foreign income or self-employment considerations.

Because each expat’s situation is unique, it’s advisable to consult a qualified tax professional familiar with expat tax issues so you can ensure all requirements are met and claim the right credits and exclusions, enabling you achieve both compliance and peace of mind.