Discovering that you’ve failed to report foreign income or file required international tax forms can trigger immediate panic. Thousands of U.S. taxpayers have encountered this stressful situation. By utilizing the IRS streamlined filing compliance procedures, many individuals are able to resolve these issues with reduced penalties and get back on track.

When facing complex international tax matters, it may be beneficial to consult an international tax lawyer for personalized assistance.

What Are Streamlined Filing Compliance Procedures?

The IRS Streamlined Filing Compliance Procedures are voluntary disclosure procedures that allow eligible U.S. taxpayers to resolve past non-willful failures to report foreign income and file required international information returns, such as FBARs, while receiving favorable penalty relief. These procedures were established in 2012 and expanded in 2014 to provide a streamlined path to compliance for taxpayers whose violations were due to negligence, inadvertence, or mistake rather than willful failure to file or tax evasion. The program offers two distinct pathways depending on your residency status and circumstances.

Understanding Eligibility Requirements

Before you can participate in the streamlined procedures, you must meet several critical requirements that the IRS strictly enforces. These key eligibility criteria include:

Non-willful conduct: Your failure to report foreign income or file required forms must be “non-willful,” meaning the violations resulted from negligence, inadvertence, or mistake rather than intentional disregard of tax obligations. This determination is often complex and largely depends on your specific facts and circumstances.
No prior IRS contact: You cannot be under IRS examination or audit for the tax returns you’re submitting.
No previous penalties: You cannot have been previously penalized by the IRS for the non-compliance issues you’re addressing through the streamlined procedures.
Taxpayer eligibility: You must meet the IRS requirements for taxpayer eligibility under the streamlined procedures.
Certification under penalties of perjury: You must be able to certify under penalties of perjury that your conduct was non-willful regarding both the failure to report income and the failure to file required information returns like FBARs.

The distinction between willful and non-willful conduct is critical because willful violations can result in severe criminal and civil penalties and disqualify you from the procedure entirely. Willful taxpayers should consider utilizing the Voluntary Disclosure Program. Understanding these requirements upfront can save you considerable time and help determine whether the streamlined filing compliance procedures are the right path for your situation.

Domestic (SDOP) Vs. Foreign (SFOP) Streamlined Procedures

The IRS offers two distinct pathways that provide different levels of penalty relief based on your certain criteria. Understanding which pathway applies to your situation is important for determining your potential penalty exposure and filing requirements.

The Streamlined Foreign Offshore Procedures are available to U.S. taxpayers living outside the United States who meet specific foreign residency requirements. To qualify for this more favorable option, you must demonstrate that you were physically present outside the U.S. for at least 330 days in any one of the three years for which you’re seeking relief, among other requirements. For non-citizens and non-permanent residents, you must show that you didn’t meet the substantial presence test.

The Streamlined Domestic Offshore Procedures are designed for U.S. residents who don’t meet the foreign residency requirements but still qualify under the non-willful standard. These taxpayers must have previously timely filed U.S. tax returns and must address their non-compliance with foreign financial asset reporting requirements.

Required Documents And Filing Requirements

Successfully completing the streamlined procedures requires meticulous preparation and submission of specific documentation. The core required documents include:

Amended or delinquent tax returns (under SDOP and SFOP, respectively): Form 1040X for the three most recent years for which the due date has passed, properly reporting all worldwide income that was previously omitted.
Required international information forms: For the delinquent or amended returns, as the case may be, you must include all required international information reporting forms, which may include Form 8938 (Statement of Specified Foreign Financial Assets).
Delinquent or amended FBARs: FinCEN Form 114 for the six most recent years filed electronically through the BSA E-Filing System.
Non-willful certification: A signed statement under penalties of perjury explaining your non-willful conduct with specific details about your circumstances.

The non-willful narrative requires careful drafting because it serves as your sworn statement that your violations weren’t willful. This narrative must provide specific reasons for your failure to report income, pay tax, and submit required information returns, including both favorable and unfavorable facts about your situation, the source of funds in your foreign accounts, details about any contacts with these accounts including withdrawals and deposits, and information about any professional advisors you consulted. Any inconsistencies or statements that could suggest willful conduct may disqualify you from the program or be used against you in future enforcement actions.

Penalty Relief And Benefits

Taxpayers using the Streamlined Foreign Offshore Procedures receive complete relief from both FBAR penalties and accuracy-related penalties on unreported foreign income. This can represent significant savings since FBAR penalties for non-willful violations can be substantial, and additional penalties may apply to unreported income. However, you remain liable for any unpaid taxes and interest on those amounts, which the IRS will calculate from the original due dates of the returns.

The Streamlined Domestic Offshore Procedures offer substantial but not complete penalty relief. Instead of facing potentially severe FBAR and accuracy-related penalties, you’ll pay a one-time miscellaneous penalty equal to 5% of the highest aggregate year-end balance in your unreported foreign accounts, and certain foreign assets, during the covered years. This 5% penalty applies to certain foreign financial assets that should have been reported on timely required international information forms.

Step-By-Step Application Process

Gather financial records: Collect all relevant documentation including foreign bank statements, investment account records, brokerage statements, and documentation of foreign income for all required years.
Prepare tax returns: Complete tax returns for the three most recent years, ensuring all foreign income is properly reported and any required international information forms are included and complete.
File delinquent FBARs: Submit FBARs electronically through the BSA E-Filing System for the six most recent years, accurately reporting the maximum balance in each foreign account during each calendar year.
Draft non-willful statement: Carefully prepare your non-willful certification explaining your circumstances.
Submit complete package: File all required documents together as a complete package carefully following the IRS instructions to ensure proper processing.

The IRS processes streamlined submissions as a unit, so missing documents or piecemeal submissions can cause delays and complications. Pay particular attention to foreign tax credits you may be entitled to claim, as these can reduce your U.S. tax liability substantially on foreign income.

Common Mistakes To Avoid

Several common errors can jeopardize your streamlined filing submission or result in rejection by the IRS. The most critical mistake involves making statements in your non-willful certification that could be interpreted as evidence of willful conduct or not providing the required information for a complete and truthful statement.

Ensure all amended returns and FBARs are accurate and complete before submission. Errors in account balances, income amounts, or foreign tax credits may raise questions about the quality of your preparation and could trigger additional scrutiny. The IRS expects truthful, complete, and professional-quality work in streamlined submissions, and inadequate preparation can undermine your case for non-willful treatment.

Don’t submit partial packages or file documents separately. Follow the streamlined instructions carefully for proper processing. The streamlined procedures require submission of all components together, and filing amended returns separately from your streamlined package can cause the IRS to process them outside the program, potentially resulting in standard penalties and examination procedures.

Be particularly careful with timing considerations. If you receive any correspondence from the IRS about your foreign accounts or income after you’ve decided to pursue streamlined procedures but before you’ve submitted your package, you may no longer be eligible for the program. Once the IRS initiates contact about these issues, your window for streamlined treatment typically closes.

Finally, don’t attempt to use streamlined procedures if your violations were willful or if you’re uncertain about the willfulness standard. The consequences of making false statements under penalties of perjury can include criminal prosecution, and the IRS has pursued such cases when taxpayers have misrepresented their conduct in streamlined submissions.

If you’re uncertain about any aspect of your compliance process, consulting an international tax attorney may provide the necessary insight to avoid missteps.

Facing a Tax Problem? We’re Here to Help.

At Hughes Noff Tax Law, we know how overwhelming it can feel when the IRS or state tax authorities get involved. Whether you’re dealing with an IRS audit or tax dispute, international tax non-compliance, or tax debt resolution, we’re here to give you relief and bring down that anxiety. Let us deal with the federal government—so you don’t have to.

We approach every client with empathy and provide the advocacy, direction, service, and resolution they deserve. We have over 25 years of experience resolving complex tax controversies and understand the unique and sensitive nature of these matters. As both attorneys and CPAs, we understand the law and the numbers. Our clients appreciate the clarity and peace of mind we help restore—read their stories here.