Rev Proc 2014-18: The Streamlined Foreign Procedures

Revenue Procedure 2014-18 established the Streamlined Foreign Offshore Procedures, a program that provides a pathway for certain U.S. taxpayers living abroad to become compliant with their tax obligations. It is designed for individuals whose failure to file past tax returns and information reports was not a result of willful behavior. By following the procedures, eligible taxpayers can file overdue returns and resolve their tax liabilities while avoiding certain penalties.

Eligibility for the Streamlined Procedure

Residency Requirement

To qualify for the Streamlined Foreign Offshore Procedures, a taxpayer must first meet a specific non-residency test. For U.S. citizens and lawful permanent residents, this involves demonstrating that in at least one of the three most recent years for which the tax return due date has passed, they did not have a U.S. abode and were physically outside the United States for at least 330 full days. Individuals who are not U.S. citizens or permanent residents meet this requirement if they fail to meet the substantial presence test for any of the last three years.

Non-Willful Conduct

A requirement of the program is that the failure to file tax returns and report all income was due to non-willful conduct. Non-willfulness is defined as conduct that results from negligence, inadvertence, a mistake, or a good faith misunderstanding of the law’s requirements. The determination is based on all the facts and circumstances, and the IRS places emphasis on the taxpayer’s ability to provide a clear explanation for their past non-compliance.

Prior Examination

Eligibility for the streamlined procedures is not available to taxpayers who are under an active civil examination or a criminal investigation by the IRS. This restriction applies for any taxable year, regardless of whether the examination is related to undisclosed foreign financial assets. If the IRS has initiated contact regarding an examination before a submission is made, the taxpayer is precluded from using this program.

Valid Taxpayer Identification Number

A taxpayer must have a valid Taxpayer Identification Number (TIN) to participate in the program. For most individuals, this is their Social Security Number (SSN). If a taxpayer does not have a TIN and is not eligible for an SSN, they may need to obtain an Individual Taxpayer Identification Number (ITIN) before making a submission.

Required Information and Forms

Tax Returns

The taxpayer must prepare U.S. income tax returns for the three most recent years for which the due date has passed. This involves completing Form 1040, U.S. Individual Income Tax Return, for each of these years, including all required international information returns such as Form 8938. Submissions must also account for the section 965 transition tax on any specified foreign corporations, if applicable. If returns were previously filed but were incorrect or incomplete, amended returns on Form 1040-X must be prepared.

Report of Foreign Bank and Financial Accounts (FBAR)

In addition to tax returns, the procedure requires filing delinquent Reports of Foreign Bank and Financial Accounts (FBARs). The taxpayer must file FBARs for the six most recent years for which the filing deadline has passed. This is done using FinCEN Form 114, which is filed electronically with the Financial Crimes Enforcement Network (FinCEN), not with the IRS. The form requires reporting foreign financial accounts that, in aggregate, exceeded $10,000 in value at any point during the calendar year.

Certification of Non-Willfulness

The submission package must include Form 14653, Certification by U.S. Person Residing Outside of the United States. This form requires the taxpayer to certify their eligibility, that the required FBARs have been filed, and that the failure to comply was non-willful. The form includes a section for a detailed narrative explaining the specific facts and reasons for the failure to report income and pay tax. This narrative is the taxpayer’s primary opportunity to demonstrate non-willful conduct.

How to Make a Submission

The signed Form 14653 is placed on top of the tax returns and any accompanying information returns. The taxpayer must write “Streamlined Foreign Offshore” in red ink across the top of the first page of each tax return. This labeling ensures the returns are routed for processing under the correct program. Any tax due with the submission must be paid when the returns are filed.

The completed package must be mailed to a specific IRS address designated for these procedures: Internal Revenue Service, 3651 South I-H 35, Stop 6063 AUSC, Attn: Streamlined Foreign Offshore, Austin, TX 78741. This address is exclusively for streamlined submissions and should not be used for regular tax filings.

The required FBARs are not included in the mailed package. Instead, they must be filed electronically through the Financial Crimes Enforcement Network’s BSA E-Filing System. When filing, the taxpayer should select “Other” from the dropdown menu for the reason for late filing and enter “Streamlined Filing Compliance Procedures” in the provided explanation box. After the submission is mailed and the FBARs are filed, the IRS will process the returns. If the submission is deemed complete and the non-willful certification is accepted, the IRS will process the returns without assessing penalties.