IRS Releases Procedure for Amending a Streamlined Submission
On July 18, 2016, the IRS released for the first time the procedure for amending a streamlined submission, as part of ongoing updates to its Frequently Asked Questions for U.S. Taxpayers Residing in the United States (Question 16 — link) and for U.S. Taxpayers Residing Outside the United States (Question 9 — link). The release provides much needed clarity for both taxpayers and practitioners alike. Effectively, but as described in more detail below, the procedure for amending a streamlined submission is the same as the procedure for an original streamlined submission, but it is made clear on the submission that this version is amended from the original.
IRS Streamlined Submission: In General
The disclosure of foreign bank accounts or other foreign financial assets by U.S. taxpayers continues to be a concern for the U.S. government — examples of that concern include the passing of the Foreign Account Tax Compliance Act (FATCA), the continued controversy surrounding Swiss banks, and the recent Panama Papers scandal (as detailed in a prior blog post by Meadow Collier’s own Matthew L. Roberts — link). For those taxpayers who qualify and wish to disclose foreign bank accounts or other foreign financial assets, the IRS streamlined submission has provided a clear and relatively inexpensive (compared to the Offshore Voluntary Disclosure Program) opportunity to correct that mistake. In addition to avoiding criminal prosecution, taxpayers qualifying for the streamlined submission are eligible for significantly reduced penalties, and in the case of certain taxpayers residing outside the United States, penalties may be excused completely. The typical IRS streamlined submission includes, among other things, the taxpayer’s tax returns (amended returns for the domestic offshore submission and amended or original returns for the foreign offshore submission) for the three previous years and delinquent Foreign Bank Account Reports (FBARs) for the taxpayer’s six previous years.
Potential Negative Consequences If an IRS Streamlined Submission Is Not Amended
Until recently, clear written guidance did not exist on how to amend an IRS streamlined submission. This lack of guidance was especially troublesome for taxpayers who later discovered they mistakenly forgotten to include one or more foreign bank accounts or other foreign financial assets in their original streamlined submission. Without clear guidance, the taxpayer may have been left with the impression that not disclosing the missing accounts and taking a “wait and see” approach was their only option. That however is far from true. A failure to disclose a foreign bank or foreign financial account on either an FBAR or IRS Form 8938 can result in severe financial penalties, and even potential jail time (for example, up to five years in prison for a willful FBAR violation).
How to Amend an IRS Streamlined Submission
To plan against the potential negative consequences from a failure to include a foreign bank account or other foreign financial asset in an original streamlined submission, a taxpayer should consider filing an amended streamlined submission. To be eligible for an amended streamlined submission, the tax returns previously submitted may not be under IRS examination. The amended streamlined submission would include:
1. Corrected Amended Returns
The taxpayer would include in its amended streamlined submission corrected amended returns for the years covered in the original submission. If, for example, the taxpayer failed to include all of its foreign financial assets on Form 8938, the amended submission would include a corrected Form 8938 for each of the years in the original submission in which a foreign financial asset was not included. At the top of the first page of each of the corrected amended returns, the taxpayer would write in red ink “Amended Streamlined Domestic Offshore” for the domestic offshore submission (eligibility requirements — link) or “Amended Streamlined Foreign Offshore” for the foreign offshore submission (eligibility requirements — link).
2. Amended Certification
The taxpayer would also have to submit an amended certification — Form 14654 for the domestic offshore submission or Form 14653 for the foreign offshore submission. On the top of the first page of the amended certification, the taxpayer would write in red ink “Amended.” On page 2 of the certification in the explanation box, the taxpayer would explain all the facts and circumstances concerning the error in the original streamlined submission.
3. Payment of Any Increase to Tax, Interest, or the Miscellaneous Offshore Penalty
If amending the streamlined submission results in any increase to tax or interest, the taxpayer would include payment of the increase in the amended streamlined submission. For a domestic offshore submission, amending the streamlined submission may result in an increase to the miscellaneous offshore penalty. If that is the case, the taxpayer would include payment of the increase in the amended streamlined submission. The taxpayer would mail the amended streamlined submission to the same address where the original streamlined submission was mailed:
IRS
3651 S. IH 35
MS 6063 AUSC
Attn.: Streamlined Procedures
Austin, TX 78741
Takeaway
The IRS’ quest to improve transparency and provide clarity continues with the publication of the procedure for amending a streamlined submission. The simplicity of the procedure should encourage those taxpayers who have made mistakes in their original streamlined submission to consider an amended streamlined submission, especially given the negative consequences that may result without an amendment. If you have questions regarding the procedure for amending an IRS streamlined submission or IRS streamlined submissions in general, please contact Daniel Boysen at (214) 749-2413 or dboysen@meadowscollier.com.
