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Taxpayers Using the Streamlined Procedure May Be Subject to More Than Three Years of Tax Return Filings

Taxpayers Using the Streamlined Procedure May Be Subject to More Than Three Years of Tax Return Filings
Ines Zemelman, EA
27 January 2022

Streamlined Procedure — Penalty-free Catch Up

The IRS started the Streamlined Procedure (SFOP) in 2014, giving delinquent taxpayers a great opportunity to catch up with US tax filing obligations and have old penalties forgiven. Prior to the Streamlined Procedure, taxpayers would use the Offshore Voluntary Disclosure Program, which involved up to a 50% penalty on unreported foreign financial assets. The Streamlined Procedure is much more forgiving by comparison.

Typically, a taxpayer who qualifies for the Streamlined Procedure only needs to file three tax returns and six FBARs to become tax compliant. No tax filing is required prior to the three years of filing. For example, since the current Streamlined Procedure requires tax returns for 2018, 2019 and 2020, any unfiled returns for 2017 and earlier years are no longer required to be filed.

To learn more about it, watch the recording of our webinar on Streamlined Procedure and read the article where we've answered all the common questions about the Streamlined Procedure program.

 

New Guidance for SFOP for Owners of Controlled Foreign Corporation (CFC)

However, the IRS recently issued new guidance for filers of Streamlined Procedure who owned a Controlled Foreign Corporation (CFC) that was subject to the Section 965 Transition Tax. The Section 965 Transition Tax was a one-time tax for owners of a CFC which had accumulated earnings and profits as of the end of 2017. Taxpayers meeting this condition will not only need to file the three most recent tax returns to qualify for the Streamlined Procedure, but also all prior year returns going back to the year in which the Section 965 Transition occurs. Currently, this is 2017 for most taxpayers and 2018 for others.

Using the above example, the filer would need to file a 2017 return with the Transition Tax in addition to the 2018, 2019 and 2020 returns. Be aware that filing the Streamlined Procedure after this year’s due date for expatriate filing on June 15, 2022 will require five returns to be filed, starting with 2017 and ending with 2021.

Be aware that filing the Streamlined Procedure after this year’s due date for expatriate filing on June 15, 2022 will require five returns to be filed, starting with 2017 and ending with 2021.

If you are considering using the Streamlined Procedures and owned a CFC at the end of 2017, you may be subject to the new rules. We have experts on international tax law that can help guide you through this process.

Ines Zemelman, EA
Founder of TFX