A Guide on Using Streamlined US Tax Filing for Americans Living Abroad

Millions of expats pick up their lives and migrate across the world with the dream of never returning home to their country. While embracing the new culture, responsibilities, and diversified customs, they often forget to fulfil their “old” responsibilities.

About 10 million US expats are scattered across the world. Most of them are really shocked to learn that they have an obligation to file tax returns with the IRS each year. The US, along with Eritrea, are the only countries who charge their citizens on their worldwide income.

Once knowing about this obligation, citizens are often worried about questions like:

  • What will happen if I haven’t filed the returns in the last 10 years?
  • Can I catch up on taxes without paying penalties?

All such questions can be answered with the IRS’s streamlined filing procedures.

Compliance procedures for streamlined US filing

It is designed with the intention of cutting down on the time, effort, and burdens needed to get caught up with the procedures of filing tax returns.

It was designed in 2012 as an alternative to the IRS’s other disclosure programs, like the Offshore Voluntary Disclosure program. It is to encourage US expats to get caught up on their delinquent taxes.

Can expats use the streamlined filing procedure?

It is designed specifically for US expats so that they can become tax compliant and catch up on their missed taxes. It differs from the streamlined domestic offshore procedures.

Qualification Criteria for Streamlined US Filing Procedures:

  • Valid Taxpayer Identification Number is required
  • Mention the reason for not filing it in the past (as you were not aware that you were supposed to do so)
  • Not residing in the United States for more than one of the most recent tax years
  • You are required to include a signed statement (form 14653) certifying this fact as a part of the package you will mail off to the IRS.

How to catch up on taxes through streamlined US filing?

You would be required to submit

  • Submit recent three (3) years of late federal tax returns.
  • FBAR Forms (foreign bank account reporting) for the previous six years

You would be required to file an FBAR if the account balances of all non-US bank accounts combined were higher than $10,000 at any point during the year. If you file under the program, you must file the forms regardless of whether the $10,000 threshold has been met or not.

  • Your signed “Certification by a U.S. Person Residing Outside of the U.S.” statement (form 14653)

This statement certifies that you have filed all FBAR forms, you have non-willfully failed to file the returns, and you are eligible for the program.

Forms Required for Streamlined US Filing:

  • Form 1040
  • FinCen Form 114 for your six years of FBARs
  • Form 14653

Other common expat tax forms include:

  1. Form 2555 – Foreign earned income Exclusion and Housing Exclusion or Deduction
  2. Form 1116 – Foreign Tax Credit
  3. Form 8938 – Statement of Specified Foreign Assets (Required as per the FATCA legislation)
  4. Form 8833 – Treaty-Based return Position Disclosure
  5. Form 5471 – Information Return of US persons with respect to certain foreign corporations
  6. Form 8865 – Return of US persons with respect to certain foreign partnerships
  7. Form 8621 – Information return by a shareholder of a passive foreign investment company (PFIC) or Qualified Electing Fund
  8. Form 3520/3520A – Annual return to report transaction with foreign trusts and receipt of certain foreign gifts/annual information return of foreign trust with a US Owner

How to prepare for Streamlined Filing?

  • Organize all the tax documents (for 3 years)
  • Select an expert EXPAT Tax Accountant
  • Gather all the foreign financial accounts statement (For 6 years)

Can streamlined returns be amended?

Yes, you can amend it. However, you need to be quick enough as it needs to be done before the IRS reviews your submission.

You would need to

  • Prepare corrected returns for all 3 years.
  • Submit and amend Form 14653 to explain the errors in the original submission.
  • “Amended streamlined Foreign Offshore” needs to be written with red ink on top of the first page.
  • Send your updated tax return and any extra payments that need to be made to the Internal Revenue Service.

Penalties to be paid:

All the late filing and late payment penalties for qualified expats are waived upon completing the streamlined filing.

Non-Qualified Streamlined US Filing Procedures:

If you decide to not file the tax returns willingly, then your next best option will be the OVDP, which is unfortunately closed effective September 2018.

The IRS will still continue to offer the following options to address previous failures and comply with US tax return obligations:

  • IRS Criminal Investigation Voluntary Disclosure Program
  • Delinquent FBAR submission procedures
  • Delinquent International information return submission procedures

It would be more recommendable to book a consultation with our expert US expat accountants.