The Streamlined Filing Compliance Procedures for Americans Living Abroad
Many Americans living abroad assume that they don’t have to file US taxes, perhaps because they are filing foreign taxes, or because they think that a tax treaty relieves them from having to file.
America’s tax system is unusual though, and Americans living abroad have to file US taxes if their worldwide income exceeds the IRS minimum thresholds, which start at just $5 of any income for Americans married but filing separately from a foreign spouse.
Many Americans living abroad discover they should be filing US taxes after they’ve already been abroad for a while and so already missed several years’ filings. The Streamlined Filing Compliance Procedures is an amnesty program that allows them to catch up and get compliant without facing penalties.
While there is also a domestic version, to qualify for the offshore Streamlined Filing Compliance Procedures, you must have missed the previous three years filing, and you must have been outside the US for at least 330 days in one of the missed years.
They must be able to certify that they weren’t previously filing because they didn’t know about, or misunderstood in good faith, that they had to file. As part of the process, they will need to sign a legal certification to this effect.
They also need a valid taxpayer identification number or US social security number, they must not have used the program before, and the IRS cannot have already contacted them about their non-compliance.
“The streamlined filing compliance procedures are available to taxpayers certifying that their failure to file and report foreign financial assets did not result from willful conduct on their part.” – the IRS
The Streamlined Filing Compliance Procedures requires that you file your last three years of missed tax returns. This can mean filing four returns in total if you submit them before the filing deadline, being the current year, plus the three missed years. If you submit after the filing deadline (which is June 15 if you live abroad), you only have to file three returns in total.
So the majority of Americans living abroad who use the program both catch up and become compliant without owing any penalties or back taxes. Many also receive refunds that they weren’t aware they were due.
You also have to file an FBAR (Foreign Bank Account Report) for each of the last six years when you had a total of over $10,000 in foreign financial accounts, counting any bank, pension and investment accounts registered overseas that you had signatory authority over.
Finally, you must provide a statement on Form 14653 explaining why you weren’t previously filing.
Once accepted, the Streamlined Filing Compliance Procedures means that you won’t owe any penalties, however many years’ filings you missed.
However, it doesn’t provide immunity from prosecution should the IRS later discover that you were willfully, rather than inadvertently, avoiding reporting foreign accounts or filing or paying US taxes.
The Streamlined Filing Compliance Procedures can only be used once, so once you’ve caught up, you have to keep filing in subsequent years.
How to start
The best first step is to seek advice from an expat tax specialist, who will advise you to ensure that the Streamlined Filing Compliance Procedures is right for you.