How the IRS Streamlined Procedure Can Help You Resolve Tax Issues Without Penalties

ByHafiz Amaan

If you’re an American taxpayer who has missed several years of tax filings or has failed to report certain foreign income, you’re not alone. Many taxpayers, especially those living abroad, find themselves in similar situations. Thankfully, the IRS Streamlined Procedure offers a unique solution for individuals to resolve their tax issues without facing hefty penalties. In this post, we’ll break down what the IRS Streamlined Procedure is, how it works, and how it can help you get back on track with your taxes.

What is the IRS Streamlined Procedure?

The IRS Streamlined Procedure is a tax relief program designed for U.S. taxpayers who have failed to file their taxes in previous years but want to come into compliance without facing severe penalties. The program is part of the IRS Offshore Voluntary Disclosure Program (OVDP), which aims to help U.S. citizens and residents who have neglected to report their income or financial assets, particularly those living abroad.

The streamlined procedures are specifically for individuals who meet the criteria for “non-willful” non-compliance. This means that you did not intentionally avoid filing or paying taxes, but due to oversight, misunderstanding, or other reasons, you failed to do so. The IRS Streamlined Filing Procedure provides a way for individuals to resolve their tax issues by paying only the taxes owed, along with interest—without the additional penalties.

Types of IRS Streamlined Procedures

There are two main types of IRS Streamlined Procedures: the Streamlined Domestic Procedure (SDP) and the Streamlined Foreign Procedure (SFP). Each is designed to accommodate the different circumstances of taxpayers.

  1. Streamlined Domestic Procedure (SDP)
  • The Streamlined Domestic Procedure is available for U.S. taxpayers who live in the U.S. and meet the requirements for non-willful non-compliance.
  • To qualify, you must have failed to file one or more tax returns in the past and not owe more than $50,000 in unpaid taxes, interest, and penalties for the most recent tax year.
  • The streamlined domestic procedure does not require a penalty to be paid on the unreported taxes, but you will still need to pay the taxes owed along with any interest due.
  1. Streamlined Foreign Procedure (SFP)
  • The Streamlined Foreign Procedure is for U.S. taxpayers who live abroad and have not filed their U.S. taxes for previous years.
  • One of the key benefits of the SFP is that there is no penalty on unpaid taxes if you can show that the non-compliance was due to non-willful actions.
  • To qualify for the SFP, you must prove that you were living abroad and that the non-compliance was not due to intentional evasion.

Both procedures require taxpayers to file their delinquent returns for the past three years and submit the Foreign Bank Account Report (FBAR) for the last six years if applicable.

How Does the IRS Streamlined Procedure Work?

The IRS Streamlined Procedure works by offering a streamlined, more forgiving way to file overdue tax returns and pay back taxes while avoiding penalties. Here’s a step-by-step breakdown of how the process works:

Step 1: Determine Eligibility

The first step is to determine if you qualify for the Streamlined Procedure. This involves proving that your non-compliance was non-willful. You must also meet the tax filing requirements for the past three years and submit the appropriate forms.

Step 2: File Your Delinquent Tax Returns

Once you’re eligible, you’ll need to file the tax returns for the past three years (or more if necessary) along with any required supporting documents, such as the FBAR or Form 8938 (Statement of Specified Foreign Financial Assets).

Step 3: Pay Taxes and Interest

After filing the returns, you will need to pay the taxes owed for each year along with any interest on the amount due. There are no penalties assessed under the Streamlined Procedure, but the interest on unpaid taxes must still be paid.

Step 4: Submit Certification of Non-Willfulness

As part of the Streamlined Filing Procedure, you’ll need to submit a Certification of Non-Willfulness. This form certifies that your non-compliance was not intentional and that you are acting in good faith to resolve your tax situation.

Step 5: Wait for IRS Approval

After you submit your filing package, the IRS will review your case. If everything is in order and you meet the program requirements, they will accept your submission, and you will have resolved your tax issues without penalties.

Benefits of Using the IRS Streamlined Procedure

The IRS Streamlined Procedure provides several key benefits for taxpayers looking to get back on track with their tax filings:

  1. Penalty Relief

The primary benefit of the Streamlined Procedure is the relief from penalties. Traditional tax filings for past due returns often come with significant penalties, but the streamlined process eliminates those penalties, which can amount to thousands of dollars. This makes the program an excellent option for those who need to catch up on their tax filings but want to avoid paying excessive penalties.

  1. Simplified Process

The IRS Streamlined Procedure simplifies the tax compliance process, especially for individuals living abroad. By offering a more straightforward filing process, it enables taxpayers to correct their filings without dealing with the complexities of traditional penalty-heavy processes.

  1. Rebuild Your Tax Compliance History

Resolving your tax issues using the Streamlined Procedure helps you get back on track and shows that you’re in compliance with U.S. tax laws. This can have a positive impact on your financial standing, especially if you’re planning to apply for loans, mortgages, or other financial services that require proof of tax compliance.

Common Mistakes to Avoid

While the IRS Streamlined Procedure is an excellent option for resolving tax issues, there are some common mistakes taxpayers make that could delay the process or cause issues:

  1. Failing to Submit Complete Documentation
    Ensure that you submit all the necessary forms and supporting documentation. Missing paperwork or incomplete submissions can delay your case.
  2. Not Properly Certifying Non-Willfulness
    The Certification of Non-Willfulness is a crucial part of the process. Be sure to accurately complete this form and provide any supporting information that shows the non-willful nature of your non-compliance.
  3. Assuming You Qualify Without Checking
    Don’t assume you automatically qualify for the Streamlined Procedure. Review the eligibility criteria carefully, and if necessary, consult a tax professional to determine whether the program is right for you.

Final Thoughts

The IRS Streamlined Procedure provides a much-needed opportunity for taxpayers who are behind on their filings to catch up without suffering steep penalties. Whether you’re living in the U.S. or abroad, this procedure offers a viable solution for getting back in good standing with the IRS and resolving your tax issues quickly and efficiently.

If you’re unsure about your eligibility or need help navigating the process, consider working with a tax professional specializing in IRS compliance. They can ensure that you meet all the requirements, file correctly, and avoid common pitfalls along the way.

 

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