Streamlined Filing Compliance Procedures

Both the Streamlined Domestic and Foreign are designed to provide relief for taxpayers who failed to report foreign income and accounts or assets, can certify that their conduct was non-willful, and are seeking to fix their non-compliance.

However, streamlined is only one of the possible paths to come into compliance. Which path to follow generally includes considerations such as whether the conduct was willful, whether reasonable cause applies, and whether there was any unreported income associated with the foreign information reporting non-compliance.

If you have been reading IRS publications or various online content and you are trying to decide which procedure is right for you, this article is designed to assist with understanding the framework for making the decision. It follows the same decision tree a tax attorney analyzes before anything is filed, so you can better evaluate the proper path to resolve your non-compliance. Most people arrive here after having read terrifying stories of non-compliance online. Set those aside for a moment. The proper path is dictated by your facts in the context of the discussion outlined below.

The possible compliance options – selecting the right path

There are generally four primary unique procedures in play for offshore noncompliance. Some carry no penalties, and others have mitigated penalty structures. It is important to thoroughly evaluate your facts to determine which path is appropriate.

” In addition to reviewing the circumstances surrounding the non-compliance, we build a matrix of the potential statutory penalties and educate the client before they pick a path, so they’re an educated consumer and can weigh every option against the worst-case scenario.”

— Eli Noff, Hughes Noff Tax Law

The four primary procedures are the Streamlined Foreign Offshore Procedures (SFOP), the Streamlined Domestic Offshore Procedures (SDOP), the Delinquent International Information Return Submission Procedures (DIIRSP), and the Voluntary Disclosure Practice (VDP). Each exists for a different set of circumstances.

The FBAR obligation that sends most people searching to come into compliance is triggered when the aggregate value of your foreign financial accounts exceeds $10,000 at any point during the calendar year. Crossing that threshold without filing an FBAR results in non-compliance with the potential for significant statutory penalties. Other compliance failures, such as the failure to file Forms 8938, 3520, 5471, and other Title 26 forms, similarly carry significant statutory penalties.

After thoroughly evaluating the overall information reporting and income non-compliance, the compliance path is dependent on the answer to several questions. This article will evaluate non-compliance largely from the perspective of an FBAR reporting violation.

Question one: was the conduct willful?

The initial determination is whether the FBAR compliance failure resulted from conduct that was criminally or civilly willful. That answer may rule out most of the outlined procedures and point towards utilizing the Voluntary Disclosure Practice.

“The top of the funnel really is a question of willful or non-willful conduct. If the conduct is willful (either civilly or criminally), that may push us into a very narrow lane, the Voluntary Disclosure Practice. If willfulness is not a concern, then we have other options.”

— Eli Noff, Hughes Noff Tax Law

If a client is criminally willful generally defined as a voluntary, intentional violation of a known legal duty, they have real criminal exposure. The Streamlined procedures are inappropriate for a client with that profile, and they should carefully consider utilizing the Voluntary Disclosure Practice. Attempting to remediate criminal conduct through a non-willful streamlined certification is not a shortcut. It is a new problem stacked on the old one.

“If someone was criminallywillful and tried to wedge themselves into a non-willful streamlined disclosure, that’s a new affirmative act. It’s a new crime.”

— Eli Noff, Hughes Noff Tax Law

Civil Willfulness is generally interpreted more broadly than criminal willfulness. The test for civil willfulness is “whether a person either: (1) knowingly violated a legal duty; (2) recklessly violated a legal duty; or (3) acted with ‘willful blindness’ by making a conscious effort to avoid learning about a legal duty.” This finding must be supported by evidence of willfulness and the burden of establishing willfulness is on the IRS. See IRS I.R.M. 4.26.216.5.5.1 (06-24-2021).

Willfulness is shown by the person’s knowledge of the reporting requirements and the person’s conscious choice not to comply with the requirements. The person only needs to know that a reporting requirement exists. The government can meet its burden of proof using circumstantial evidence. U.S. v. Sturman, 951 F.2d 1466 (6th Cir. 1991). The government may also show its burden with willful blindness. See U.S. v. Williams, 489 Fed. Appx. 655 (4th Cir. 2012). The Supreme Court denied review of the proper standard for willfulness. Bedrosian v. United States, Sup. Ct. Dkt. No. 22-598 (2023).

It is important to carefully evaluate all relevant facts to make a proper willfulness determination. Relevant facts include (non-exhaustive list):

• Whether a Schedule B checking the box “no” to the foreign account questions has been previously filed for a year where a delinquent FBAR exists;
• Whether the foreign bank educated the taxpayer regarding their US filing obligations either during the initial account formation, or at a later point;
• If a CPA was utilized, reviewing the client’s responses to the tax organizer, with particular attention paid to the foreign account questions.

Question two: is there unreported income?

Once it is determined that willfulness does not apply, the next question that controls the path forward is whether there was any unreported income associated with the foreign account or assets. Did the foreign accounts or assets generate income, interest, dividends, capital gains, that never made it onto a U.S. return?

“At that point in the funnel the question is: is there unreported income associated with some information reporting violation, yes or no? If there’s no unreported income, and the violation is for a Title 26 information report (not FBAR),resolution goes down a different path, generally the DIIRSP. If the violation was for a Title 31 FBAR only, the proper compliance path has changed with the IRS recently abolishing the Delinquent FBAR Submission Procedures. If there was unreported income, we consider eligibility for the Streamlined Filing Compliance Procedures.“

— Eli Noff, Hughes Noff Tax Law

The streamlined paths, either Streamlined Foreign or Domestic, exist specifically to resolve non-willful information reporting failures tied to unreported foreign income. If there is no unreported income and your only failure is a late information return (such as Form 8938 or 3520) or a late FBAR, the Streamlined Filing Compliance Procedures are not appropriate.

• No income, late FBAR only: the IRS previously instructed taxpayers to file through the Delinquent FBAR Submission Procedures which has been abolished as of July 1, 2026. See our article on the closing of the Delinquent FBAR Submission Procedure and what that means for taxpayers.
• No income, late Title 26 information return (Form 3520, 5471, 8938, and the like): the IRS instructs taxpayers to utilize the Delinquent International Information Return Submission Procedures (DIIRSP).

The DIIRSP has been significantly watered down over the years and no longer carries the “no penalty for compliance” promise, which changes how you approach the non-compliance. That distinction is important and merits its own article for discussion. You need to thoroughly understand the statutory penalty risk and evaluate your reasonable cause position before utilizing the DIIRSP.

If there is unreported income associated with the non-willful foreign information non-compliance, you are potentially in Streamlined Filing Compliance Procedure territory, and if applicable, the question becomes which streamlined procedure is the right fit.

Since the Streamlined Domestic path carries a penalty, although it is generally significantly lower than the statutory penalties that could apply from the non-compliance, it is important to first consider whether your conduct meets the reasonable cause standard, which generally serves as an escape hatch from penalties altogether. Reasonable cause, which the IRS considers a high bar, is its own topic and will be addressed in a separate post. This article assumes that you do not meet the strict reasonable cause standards.

On the streamlined branch: foreign before domestic

With unreported income and non-willful conduct, two streamlined doors remain. One is more lenient than the other, however you must work through eligibility before selecting a path.

“After we complete the non-willful analysis and evaluate for reasonable cause, we determine whetherthere is any unreported income. If there is unreported income from the foreign financial assets that weren’t disclosed, we consider streamlined domestic or streamlined foreign as paths towards compliance. You first start with streamlined foreign. Are they eligible, yes or no? If yes, we proceed down that path, because it carries no penalties.”

— Eli Noff, Hughes Noff Tax Law

The distinction between the two procedures is material. The Streamlined Foreign Offshore Procedures carry no miscellaneous offshore penalty for taxpayers who meet the non-residency test. The Streamlined Domestic Offshore Procedures carries a 5% Title 26 miscellaneous offshore penalty on the highest year-end value of your foreign financial assets over the covered period, per the IRS streamlined instructions. Both require the same non-willful conduct, the same three amended income tax returns, and the same six years of FBARs. The difference between zero and five percent is the non-residency test, which is why the streamlined foreign (SFOP) eligibility gets tested first and domestic (SDOP) is the fallback when the residency facts do not clear the bar.

“I didn’t know” is not always the same as “not civilly willful”

The determination of whether conduct was civilly willful often hinges on the facts and does not necessarily align with your own evaluation of willful conduct.

“Clients tend to confuse the criminal standard for willfulness, which is a violation of a known legal duty, with the broader civil standard. That goes to the expansive definition of willfulness in the civil context, which includes reckless and willfully blind conduct. The civil definition is broader.“

— Eli Noff, Hughes Noff Tax Law

Civil willfulness, the standard that governs the FBAR penalty under 31 U.S.C. 5321(a)(5), is more expansive: courts have read it to reach recklessness and willfully blind conduct. That is why “I didn’t know” is an insufficient evaluation of civil willfulness for purposes of determining the next steps towards coming into compliance.

The determination is holistic, based on multiple facts.

“We look at everything holistically: how you answered the foreign account questions on Schedule B,your communications with the accountants, the documentsshared with them, the way questions were answered on the tax organizers, any guidance provided by the accountant, the paperwork signed with the foreign bank to open and operate the account, how the accounts were used, whether taxes were paid to the foreign country where applicable, what you knew, what you didn’t know, what you disclosed and what you didn’t.“

— Eli Noff, Hughes Noff Tax Law

The foreign-account question at the bottom of Schedule B is one of those facts, and answering “no” when you had foreign accounts is a negative factor. This fact is evaluated against other relevant facts, and careful consideration should go into the determination prior to proceeding with a streamlined disclosure.

The careful timing trap

Timing can significantly impact eligibility for a particular procedure. Streamlined eligibility, especially for the foreign path, depends on a look-back period that shifts based on when you file your current-year return. Filing a current year tax return prior to considering eligibility and timing for the SFOP process may result in the loss of eligibility.

“You have to know which year is your qualifying year when considering SFOP. If 2022 is your qualifying year for streamlined foreign offshore procedures, and you file your 2025 return before completing the streamlined submission, you shift the three-year look-back forward to 2023 through 2025, dropping off 2022, and with it your non-residency eligibility. Upon discovering the non-compliance, you want to be strategic about timing.”

— Eli Noff, Hughes Noff Tax Law

The streamlined look-back period is the three years for which the return due date, or extended due date, has already passed. That window moves as deadlines pass. If the one year that makes you eligible is about to fall out of the window, the order in which you file the current return and complete the streamlined submission can decide the outcome. This is covered in depth on the Streamlined Foreign page, but it is worth noting again.

The same applies in the streamlined domestic (SDOP) context. If the year with unreported foreign income is 2022, the earliest of the three-year look-back period, filing a 2025 return prior to completing the SDOP submission, may result in the shifting of the SDOP look-back period to 2023 through 2025, and if there is no unreported income in those years, it may result in lack of eligibility to utilize the SDOP.

It is important to note that it is never acceptable to file a false tax return by failing to report foreign assets or income, or to miss an FBAR deadline, in order to manipulate the streamlined look-back period.

The streamlined filing compliance procedures is about penalty mitigation, not abatement

Once you understand the paths available, you understand why timing and early counsel are important. The value of getting this right is keeping the penalty from ever being assessed.

“The objective in the streamlined world is penalty mitigation, not abatement. Abatement means something was assessed and you are trying to get it removed. Mitigation in this context means you are trying to keep the penalties from ever being assessed. In streamlined foreign there are zero penalties. In streamlined domestic you’re mitigating your exposure down to a 5% penalty on the year-end balance of the foreign financial assets.”

— Eli Noff, Hughes Noff Tax Law

Mitigation is the objective. You come into compliance through the proper procedure before the IRS assesses any penalties or examines your non-compliance, and the statutory penalties are not assessed. Instead, when utilizing SDOP, the 5% miscellaneous offshore penalty applies. Abatement is the process you pursue once a penalty has been assessed, and now you are asking to have it removed, either directly with the assessing function or with the IRS Office of Appeals. In some circumstances when penalties are assessed, litigation in federal court may be necessary. The objective of coming into compliance voluntarily through one of these procedures is to avoid statutory penalties. Mitigating voluntarily is often less expensive, faster, and less uncertain than facing an examination or statutory penalty assessment and requesting abatement. Proactive versus reactive can make a significant difference in the foreign information reporting penalty world.

What happens if you pick the wrong door

“Using the wrong procedure can expose someone to the statutory penalties they were trying to avoid. You have already disclosed all of your foreign noncompliance, both income and information reporting, and if the IRS disagrees with the path you chose, they can bring all of those statutory penalties to bear. That can be a very costly mistake, both on the penalty front and the representation costs working through abatement.”

— Eli Noff, Hughes Noff Tax Law

That is the risk the careful decision tree aims to prevent. Selecting the proper procedure the first time is the difference between a problem resolved and a new problem.

A note for the CPA or enrolled agent reading this

If you discovered non-compliance for an existing client, or when onboarding a new client, the case evaluation is the same. It is important to thoroughly evaluate the relevant facts and appropriate compliance path prior to submitting amended or delinquent forms, or the current year income tax return, as the timing of the current-year may impact the look-back window, thereby impacting eligibility.

“We routinely work with accountants who discover non-compliance. Sometimes for their existing clients, and sometimes because they picked up a new client, and as they are doing their due diligence, they discover the issue and want us to assist with fixing the prior years before they’ll take on the engagement and jump into the current year.”

— Eli Noff, Hughes Noff Tax Law

Frequently asked questions

What is the difference between the Streamlined Domestic Offshore Procedures (SDOP) and Streamlined Foreign Offshore Procedures (SFOP)?

Both are designed for non-willful taxpayers with unreported foreign income who have delinquent international information returns. Streamlined Foreign (SFOP) carries no miscellaneous offshore penalty but requires you to meet the non-residency test. Streamlined Domestic, for taxpayers who do not meet the non-residency test, carries a 5% penalty on the highest year-end value of your foreign financial assets.

I never filed income tax returns for those years. Can I still use streamlined?

It depends on the path. The Streamlined Foreign procedure allows first-time filing of delinquent tax returns. The Streamlined Domestic procedure only allows amending returns you already filed. If you have unfiled returns, that difference may decide which door, if any, is open to you.

I only missed an information return, like a Form 3520, and had no unreported income. Do I need streamlined?

No. With no unreported income, the streamlined procedures do not apply. Your path is a delinquent submission procedure, specifically the Delinquent International Information Return Submission Procedures (DIIRSP), depending on which form was late (Title 26 versus Title 31). If the delinquent information return is an FBAR (Title 31), then take a look at our delinquent FBAR post now that the Delinquent FBAR Submission Procedure has been abolished.

Does “I didn’t know” mean I am non-willful?

Not necessarily. It may rule out criminal willfulness, but the civil willfulness standard is broader and reaches reckless and willfully blind conduct. Whether you can certify non-willful conduct under penalty of perjury requires a full evaluation of your facts.

Where this leaves you

The framework for determining the proper path towards compliance requires a careful evaluation of the overall non-compliance applying the comprehensive framework outlined herein.

At Hughes Noff Tax Law, the first stage of every offshore matter is learning your facts before recommending a path, so you select a procedure for which you are eligible and that meets your risk tolerance. We educate our clients, weighing every option against the worst case, and help our clients make informed decisions rather than decisions based on fear or misinformation.