Get to know the authorRealizing you owe back taxes as an expat can be stressful, but there’s no need to panic.
The IRS offers several relief programs for those who fall behind on international tax and reporting obligations. Two key programs include the Streamlined Foreign Offshore Procedures (aka Streamlined Procedure) and the Delinquent International Information Return Submission Procedures (aka DIIRSP).
In the right circumstances, these programs can help expats catch up on back taxes while greatly reducing — or even eliminating — additional fines, fees, and penalties.
Each program has its own benefits and eligibility criteria, so below, we’ve put together a high-level overview of the Streamlined Procedure and the DIIRSP. Read on to learn how these procedures can benefit you and which may be the better fit.
Understanding tax obligations & non-compliance
Before diving deep into the programs, let’s recap some key tax-related concepts.
All Americans who earn above the minimum reporting threshold must file a federal tax return and potentially pay US income taxes, even if they live abroad. That said, it’s not uncommon for US expats and accidental Americans to be unaware of or misunderstand their obligations to report income and pay taxes.
While there are amnesty programs available to help you catch up, whether you qualify depends largely on the reason why you fell behind. Primarily, the IRS needs to know whether your previous non-compliance was willful or non-willful.
Non-willful non-compliance
“Non-willful” here essentially means unintentional. According to the IRS, “non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that results from a good faith misunderstanding of the requirements of the law.”
Example:
Ted, a US citizen, moved to Mexico with his partner in 2020. He mistakenly thought that moving to another country meant he wouldn’t owe US taxes, so he hasn’t filed a tax return or paid taxes since then. His failure to file was non-willful.
The IRS is a bit more lenient with those whose non-compliance was non-willful. Still, non-willful failure to file and/or pay your taxes can still result in a penalty of up to 25% of your unpaid taxes and interest. A non-willful failure to file an FBAR when your foreign accounts exceed $10,000 in total, meanwhile, carries a FinCEN fine of up to $10,000 per instance.
Willful non-compliance
Willful non-compliance, on the other hand, is intentional. If somebody willfully failed to meet their tax and reporting requirements, they knew what their obligations were, but chose to ignore them.
Example:
Amara is a US green card holder who moved overseas in 2022 to live a digital nomad lifestyle. Having grown up in a country with different tax regulations, she was unaware of her ongoing obligation to file U.S. taxes while living abroad. During her first year abroad, Amara focused on adjusting to her new surroundings and managing her remote work commitments. She assumed that not working in the U.S. meant no U.S. tax obligations. It was not until a casual conversation with a fellow expatriate that she realized she might still need to file U.S. tax returns, even without earning income in the U.S. Her non-compliance was willful.
Tax laws generally treat willful non-compliance more harshly. In the absence of an amnesty program to, failure to file and/or pay your taxes can result in penalties of up to 25% of unpaid taxes. Willful failure to file an FBAR, meanwhile, can result in a fine of $100,000 or 50% of your foreign financial account’s balance and even jail time. Continued failure to pay penalties will only increase their severity.
Whether your failure to comply with your tax and reporting obligations was willful or not, it’s best to take action quickly. Procrastinating only increases potential penalties, while utilizing one of the amnesty programs below may reduce or eliminate them.
Amnesty programs for US expats
Streamlined Procedure
Definition & benefits
The Streamlined Procedure is a voluntary IRS program that allows eligible applicants to catch up on late or missing tax returns, tax payments, and reports with no additional fines or fees.
Eligibility
To qualify for the Streamlined Procedure, you must meet several requirements:
- You must have lived abroad for at least one of the past three tax years
- Note: Failing to meet the foreign residence requirement makes you ineligible for the Streamlined Foreign Offshore Procedures. However, there is a similar program called the Streamlined Domestic Offshore Procedures for Americans living in the US who have failed to report foreign financial assets.
- You must have a valid taxpayer identification number (TIN) — usually, this is your Social Security Number (SSN)
- Your failure to comply must have been non-willful
- You must not be, and never have been, under IRS investigation
- Your participation must be voluntary; that is, you must take advantage of the program before the IRS notifies you about missing tax returns, reports, or payments
Process
The Streamlined Procedure involves:
- Filing Form 14653
- Filing tax returns for the last three years, including any associated forms or schedules
- Filing FBARs for the last six years (as applicable)
- Paying any overdue taxes you owe
- Certifying under penalty of perjury that your previous non-compliance was non-willful
Delinquent International Information Return Submission Procedures (DIIRSP)
Definition & benefits
Like the Streamlined Procedure, the DIIRSP is for non-willful violations of tax and reporting obligations. Unlike the Streamlined Procedure, however, you don’t have to spend time abroad to take advantage of it.
Rather, the DIIRSP is for any US taxpayer who has fallen behind on tax documents related to foreign information disclosure, such as:
- Form 3520: For reporting certain transactions with foreign trusts as well as gifts from foreign individuals, estates, corporations, or partnerships
- Form 3520-A: For reporting US ownership of foreign trusts
- Form 5471: For reporting shares you hold in a foreign corporation
- Form 5472: For US-registered corporations owned 25% or more by a foreigner or a foreign corporation trading in the US
- Form 8398: For reporting foreign assets that exceed $200,000 on the last day of — or $300,000 at any point during — the tax year (thresholds are lower for those that are US-based)
- Form 926: For reporting certain transfers of property to a foreign corporation
- Form 8621: For reporting Passive Foreign Investment Companies (PFICs) and foreign mutual funds
Even if you’ve failed to report income related to international holdings in the past, you’re still eligible for the DIIRSP.
Note:
The DIIRSP doesn’t automatically waive penalties. That said, you may dispute a penalty if you receive one (although it can be challenging).
Eligibility
To qualify for the DIIRSP, you must:
- Have committed a non-willful violation of your tax and reporting obligations
- Have a valid taxpayer identification number (TIN) — again, usually your SSN
- Not be, and never have been, under IRS investigation
- Participate voluntarily; that is, take advantage of the program before the IRS contacts you and before they receive information from a third party about your non-compliance
Process
The DIIRSP involves:
- Submitting an amended tax return for all relevant years
- Attaching all international schedules, forms, and reports previously not included
- Separately filing Forms 3520 and 3520-A, if applicable
- Attaching a statement that proves reasonable cause for your previous non-compliance
- Note: This statement must certify that neither you nor any international organization mentioned on the forms committed a tax fraud
Choosing between the Streamlined Procedure & DIIRSP
Below, we offer a comparison of the two amnesty programs so you can have a clear picture of which one would work better in your case.
For those who qualify, the Streamlined Procedure offers a clear path to minimal or no penalties. But if you don’t meet the Streamlined Procedure’s requirement for living abroad and have fallen behind on international information disclosure forms, the DIIRSP may be a better fit.
| Streamlined Procedure | DIIRSP | |
| Benefits | Allows you to catch up on overdue taxes penalty-free | Allows you to amend returns and submit forms related to international information disclosure |
| Reason for non-compliance | Non-willful | Non-willful |
| Requirements | – Voluntary participation – Have lived abroad for at least one of the past three tax years – Have a valid taxpayer identification number (TIN) – Not be under IRS investigation | – Voluntary participation – Have a valid taxpayer identification number (TIN) – Not be under IRS investigation |
| Process | – File Form 14653 – File tax returns for the last three years – File FBARs for the last six years – Pay overdue taxes – Certify your non-compliance was non-willful | – Submit amended tax returns for all relevant years – Attach all international information forms not previously included – Separately file Forms 3520 and 3520-A, if applicable – Attach a statement proving reasonable cause for non-compliance |
Whatever your situation, it’s best to consult a licensed tax professional — only they have the expert knowledge to make informed recommendations.
Choose the best way to catch up with your taxes
If you’re an expat or accidental American behind on taxes, urgency is key. The sooner you resolve your outstanding issues, the lower your risk of negative consequences.
Resources:
- U.S. taxpayers residing outside the United States
- Failure to File Penalty
- 26 CFR § 1.6038D-8 – Penalties for failure to disclose.
- DELINQUENT INTERNATIONAL INFORMATION RETURN SUBMISSION PROCEDURES
- Delinquent International Return Submission Procedures 2023
- 10 Reasons to Avoid IRS Quiet Disclosure (New)
