Individuals can take benefit of Streamlined Filing Compliance Procedures (SFCP) in U.S.A. to report and pay taxes on undisclosed foreign financial assets. It has to be done before detection of incompliance.
SFCP can be Streamlined Domestic Offshore Procedures (SDOP) for tax residents residing in U.S.A. and Streamlined Foreign Offshore Procedures (SFOP) for tax residents not residing in U.S.A.
The eligibility requirements for each of the two procedures, the types of costs to be incurred and the compliance procedures to be followed have been listed in the following slides.
Taxpayers who fail to meet the eligibility conditions of both the categories shall not be eligible for SFCP disclosure program.
Streamlined Domestic Offshore Procedures (SDOP)
In order to be eligible for SDOP, the Individual U.S. taxpayers, or estates of individual U.S. taxpayers, must:
- fail to meet the applicable non-residency test for the number of days of stay in previous years (as stated);
- have previously filed a U.S. tax return (if required) for each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed;
- have failed to report the income from a foreign financial asset and pay tax as required by U.S. law, and may have failed to file an FBARs and/or international information returns; and
- certify that such failures resulted from non-willful conduct.
The costs to be incurred for SDOP shall be as follows:
- There is a flat 5% penalty (inclusive of all penalties including FATCA, FBAR, etc.) on unreported foreign financial assets.
- It is calculated on the highest aggregate value of all unreported foreign financial assets on the year end balance in the past six years.
- The taxpayer also has to pay appropriate additional taxes in the revised Tax Returns for the past three years and statutory interest as applicable on it.
- The legal fees of the U.S. tax attorney/CPA assisting in the compliance and advisory functions.
The taxpayer needs to fulfill the following compliances for SDOP:
- Amended Tax returns for the most recent 3 year period for which the due date (or properly applied for extended due date) has passed.
- FBARs for the most recent 6 year period for which the FBAR due date has passed.
- Self Certification, signed under penalties of perjury –
- that Taxpayer is eligible for the Streamlined Domestic Offshore Procedures;
- that all required FBARs have now been filed; and
- that the failure to file tax returns, report all income, pay all tax, and submit all required information returns, including FBARs, resulted from nonwillful conduct.
Streamlined Foreign Offshore Procedures (SFOP)
In order to be eligible for SFOP, the Individual U.S. taxpayers, or estates of individual U.S. taxpayers, must:
- meet the applicable non-residency requirement test;
- have failed to report the income from a foreign financial asset and pay tax as required by U.S. law, and may have failed to file an FBAR (FinCEN Form 114, previously Form TD F 90-22.1) with respect to a foreign financial account; and
- certify that such failures resulted from non-willful conduct.
The costs to be incurred for SFOP shall be as follows:
- There is a flat NO penalty on disclosing the unreported foreign financial assets.
- The taxpayer also has to pay appropriate additional taxes in the amended Tax Returns or delinquent/new tax returns (if not filed earlier) for the past three years and statutory interest as applicable on it.
- The legal fees of the U.S. tax attorney/CPA assisting in the compliance and advisory functions.
The taxpayer needs to fulfill the following compliances for SFOP:
- Delinquent (If not filed earlier) or Amended Tax returns for the most recent 3 year period for which the due date (or properly applied for extended due date) has passed.
- FBARs for the most recent 6 year period for which the FBAR due date has passed.
- Certification, signed under penalties of perjury –
- that Taxpayer is eligible for the Streamlined Foreign Offshore Procedures;
- that all required FBARs have now been filed; and
- that the failure to file tax returns, report all income, pay all tax, and submit all required information returns, including FBARs, resulted from nonwillful conduct.
