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1 IRM PROCEDURAL UPDATE DATE: 08/13/2014 NUMBER: WI SUBJECT: Streamline Filing Cmpliance Prcedures fr Accunts Management Internatinal IMF AFFECTED IRM(s)/SUBSECTION(s): CHANGE(s): IRM Added new IRM sectin and sub sectins fr the Streamline Filing Cmpliance Initiative. 1. The implementatin f the Freign Accunt Tax Cmpliance Act (FATCA) and the nging effrts f the IRS and the Department f Justice t ensure cmpliance by thse with U.S. tax bligatins have raised awareness f U.S. tax and infrmatin reprting bligatins with respect t nn-u.s. investments. 2. Because the circumstances f taxpayers with nn-u.s. investments vary widely, the IRS ffers Streamlined Filing Cmpliance Prcedures (SFC). 3. These prcedures have been in existence since September Hwever, due t the increase in glbal ecnmics, the streamlined filing cmpliance prcedures have been expanded and mdified t accmmdate a brader grup f U.S. taxpayers. Fr further infrmatin refer t Streamline Filing Cmpliance Prcedures n irs.gv. 4. Previusly, the prcedures were nly available t filers utside the United States. The Streamlined Filing Cmpliance prcedures have been expanded t prvide a means fr U.S. taxpayers living in the United States t crrect tax nn-cmpliance with respect t nn-u.s. investments resulting frm nnwillful cnduct. 5. If the IRS has initiated a civil examinatin fr any year cvered by the submissin, regardless f whether it relates t undisclsed freign financial accunts, the taxpayer will nt be eligible t use these prcedures. See specific instructins in the sectins belw fr taxpayers with pen audits. Similarly, a taxpayer under criminal investigatin by IRS Criminal Investigatin (CI) is als ineligible t use these prcedures. See specific instructins in the sectins belw fr tax accunts with CI activity. 6. The SFC cannt be used fr reasnable cause purpses fr previusly filed returns. Therefre, penalty assessments made n previusly filed returns will nt be abated based slely n the filing f SFC riginal r amended returns. Nrmal reasnable cause prcedures wuld still apply t previusly filed returns; Example - A taxpayer late-filed a tax year 2011 Frm 1040 and received a failure t file and failure t pay tax penalty. The filing f an Any line marked with a # sign is fr Official Use Only 1

2 amended return fr tax year 2011 under SFC prcedures is nt reasnable cause fr abatement f the previusly assessed penalties. 7. Taxpayers filing under SFC must include a certificatin, signed under penalty f perjury, which includes all f the required elements. There are tw separate certificatins. One is titled: "Certificatin by U.S. Persn Residing Outside f the United States fr Streamlined Freign Offshre Prcedures" and the ther is titled: "Certificatin by U.S. Persn Residing in the United States fr Streamlined Dmestic Offshre Prcedures". 8. The fllwing sectins prvide prcedural guidance fr Accunts Management assistrs t prcess amended returns filed under Streamlined Filing Cmpliance. IRM Streamlined Filing Cmpliance U.S. Taxpayers Residing Outside the United States 1. Individual U.S. citizens r green card hlders (Frm 1040 filers), r estates f U.S. citizens r green card hlders filing incme tax returns n behalf f the decedent (Frm 1041 filers) qualify t use the Streamline Filing Cmpliance (SFC) prcedure if: In any ne r mre f the mst recent three years fr which the U.S. tax return due date (r prperly applied fr extended due date) is past, the individual did nt have a U.S. abde and The individual was physically utside the United States fr at least 330 full days. 2. Individuals, r estates f individuals, wh are nt U.S. citizens r green card hlders may use this prcedure if, in any ne r mre f the last three years fr which the U.S. tax return due date (r prperly applied fr extended due date) is past, the individual did nt meet the substantial presence test f IRC sectin 7701(b)(3). Fr mre infrmatin n the substantial presence test, see Pub 519, U.S. Tax Guide fr Aliens. 3. Under the SFC described in this sectin, U.S. taxpayers eligible t use these prcedures wh have nt reprted grss incme r paid tax as required by U.S. law fr any f the 3 years in the cvered perid will file delinquent r amended tax returns, tgether with all required infrmatin returns (Frms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621), fr the past three years and will file delinquent Reprt Of Freign Bank & Financial Accunts (FBARs) (FinCEN Frm 114, previusly Frm TD F ) fr the past six years. Payment f the tax and interest due in cnnectin with these filings must be remitted with the delinquent riginal r amended returns. Any line marked with a # sign is fr Official Use Only 2

3 4. Amended returns submitted thrugh these prcedures will nt be subject t the failure-t-file and failure-t-pay penalties if the taxpayer meets the eligibility requirements belw: NOTE: Original delinquent returns will be prcessed similarly in Submissin Prcessing. If And Then A U.S. tax return has been filed previusly Fr each f the mst recent 3 years fr which the U.S. tax return due date (r prperly applied fr extended due date) is past and the statute f limitatins is still pen 1) Submit a cmplete and accurate amended tax return using Frm 1040X, Amended U.S. Individual Incme Tax Return, tgether with the required infrmatin returns (Frms 3520, 3520-A, 5471, 5472, 8938, 926, r 8621) even if these infrmatin returns wuld nrmally nt be submitted with the Frm 1040X had the taxpayer filed a cmplete and accurate riginal return. NOTE: Filers are instructed t write, "Streamlined Freign Offshre" in red at the tp f the first page f each amended return and at the tp f each attached infrmatin return. 2) Taxpayers will als cmplete, sign, and attach a "Certificatin by U.S. Persn Residing Outside f the United States fr Streamlined Freign Offshre Prcedures" t each amended return certifying that the taxpayer (r taxpayers) are eligible fr the streamlined filing cmpliance prcedures; and that all required FBARs have been filed. The certificatin is available t the taxpayer n IRS.gv. See Certificatin by U.S. Persn Residing Outside f the United States fr Streamlined Freign Offshre Prcedures 3) Filers must pay all tax due as reflected n the certificatin and all applicable statutry interest with respect t each f the late payment amunts. 5. Filers seeking relief fr failure t timely elect deferral f incme frm certain retirement r savings plans where deferral is permitted by an applicable Any line marked with a # sign is fr Official Use Only 3

4 treaty, will submit a signed statement requesting an extensin f time t make an electin t defer incme tax that identifies the applicable treaty prvisin alng with: the events that led t the failure t make the electin, the events that led t the discvery f the failure, whether r nt they relied n a prfessinal advisr, the nature f the advisr s engagement and respnsibilities, and if relevant, a Frm 8891 fr each tax year and each plan and a descriptin f the type f plan cvered by the submissin. NOTE: There are n actins fr AM t take regarding this paragraph. This is infrmatin nly. IRM Streamlined Filing Cmpliance U.S. Taxpayers Residing in the United States 1. As nted in (4) abve, individual U.S. taxpayers, r estates f individual U.S. taxpayers are eligible t use the Streamlined Filing prgram if: They are a U.S. Resident. Fr jint return filers, ne r bth f the spuses must be a U.S. resident. They have previusly filed a U.S. tax return (if required) fr each f the mst recent 3 years fr which the U.S. tax return due date (r prperly applied fr extended due date) has passed They have failed t reprt grss incme frm a freign financial asset and pay tax as required by U.S. law, and may have failed t file an FBAR (FinCEN Frm 114, previusly Frm TD F ) and/r ne r mre internatinal infrmatin returns (e.g., Frms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621) with respect t the freign financial asset. The failures abve resulted frm nn-willful cnduct Any line marked with a # sign is fr Official Use Only 4

5 2. Under the SFC described in this sectin, U.S. taxpayers eligible t use these prcedures wh have nt reprted incme r paid tax as required by U.S. law fr any f the 3 years in the cvered perid will file amended tax returns tgether with all required infrmatin returns (Frms 3520, 3520-A, 5471, 5472, 8938, 926, r 8621), fr the past three years and will file delinquent Reprt Of Freign Bank & Financial Accunts (FBARs) (FinCEN Frm 114, previusly Frm TD F ) fr the past six years. Eligible filers will als calculate a Title 26 miscellaneus ffshre penalty equal t 5 percent f the highest aggregate balance/value f the taxpayer's freign financial assets that are subject t the miscellaneus ffshre penalty during the years in the cvered tax return perid and the cvered FBAR perid. Payment f the tax, penalty, and interest due in cnnectin with these filings must be remitted with the amended returns. Fr further infrmatin refer t Streamline Filing Cmpliance Prcedures n irs.gv. 3. Amended returns submitted thrugh these prcedures will nt be subject t the failure-t-file and failure-t-pay penalties if the taxpayer meets the eligibility requirements belw: If And Then A U.S. tax return has been filed previusly Fr each f the mst recent 3 years fr which the U.S. tax return due date (r prperly applied fr extended due date) is past and the statute f limitatins is still pen 1) Submit a cmplete and accurate amended tax return using Frm 1040X, Amended U.S. Individual Incme Tax Return, tgether with the required infrmatin returns (Frms 3520, 3520-A, 5471, 5472, 8938, 926, r 8621) even if these infrmatin returns wuld nrmally nt be submitted with the Frm 1040X had the taxpayer filed a cmplete and accurate riginal return. NOTE: Filers are instructed t write, "Streamlined Dmestic Offshre" in red at the tp f the first page f each amended return and at the tp f each attached infrmatin return. 2) Taxpayers will als cmplete, sign, and attach a "Certificatin by U.S. Persn Residing in the United States fr Streamlined Dmestic Offshre Prcedures " t each amended return certifying that the taxpayer (r taxpayers) are eligible fr the streamlined filing cmpliance prcedures; and Any line marked with a # sign is fr Official Use Only 5

6 that all required FBARs have been filed. The certificatin is available t the taxpayer n IRS.gv. See Certificatin by U.S. Persn Residing in the United States fr Streamlined Dmestic Offshre Prcedures 3) Filers must pay all tax and penalties due as reflected n the certificatin and all applicable statutry interest with respect t each f the late payment amunts. 4. Filers seeking relief fr failure t timely elect deferral f incme frm certain retirement r savings plans where deferral is permitted by an applicable treaty, will submit a signed statement requesting an extensin f time t make an electin t defer incme tax that identifies the applicable treaty prvisin alng with: the events that led t the failure t make the electin, the events that led t the discvery f the failure, whether r nt they relied n a prfessinal advisr, the nature f the advisr s engagement and respnsibilities, and if relevant, a Frm 8891 fr each tax year and each plan and a descriptin f the type f plan cvered by the submissin. NOTE: There are n actins fr AM t take regarding this paragraph. This is infrmatin nly. IRM Adjusting Streamlined Filing Cmpliance Dmestic Accunts - (Streamlined Dmestic Offshre - SDO) 1. Filers frm within the United States will submit a package t a specific mailbx in Submissin Prcessing in Austin. The filing package cntaining cmplete and accurate amended returns using Frm 1040X, Amended U.S. Individual Incme Tax Return fr each f the mst recent 3 years fr which the U.S. tax return due date (r prperly applied fr extended due date) has passed tgether with any required infrmatin returns (e.g., Frms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621) even if these infrmatin returns wuld nrmally nt be submitted with the Frm 1040 had the taxpayer filed a cmplete and accurate riginal return. Taxpayers may NOT file delinquent riginal returns under these prcedures. Any line marked with a # sign is fr Official Use Only 6

7 NOTE: Filers are instructed t write, "Streamlined Dmestic Offshre" in red at the tp f the first page f each amended return and at the tp f each attached infrmatin return. 2. In additin t the 1040X returns, dmestic streamline filers must als submit a statement n the Certificatin by U.S. Persn Residing in the United States fr Streamlined Dmestic Offshre Prcedures attesting: The taxpayer r taxpayers are eligible fr the SDO prcedures The tax years and amunts wed fr each year including interest (payment must be made). All required FBARs have nw been filed The failure t reprt all incme, pay all tax, and submit all required infrmatin returns, including FBARs, resulted frm nn-willful cnduct The miscellaneus ffshre penalty amunt is accurate. 3. LB&I will review the submissins fr statute cnsideratins. LB&I will cmplete the "AM Streamline Cversheet" and attach it t the package ntating their statute recmmendatins regarding pen statutes and statute extensins. 4. Frm 1040X cases will be scanned int CIS fr Accunts Management prcessing and assigned t a designated IDRS number fr subsequent assignment t CSR's. 5. One CSR must wrk all related cases. 6. Accunts Management will be respnsible fr reviewing the packages t ensure the necessary certificatins are attached and cmplete. If they are incmplete AM will crrespnd with the taxpayer t perfect the submissins. 7. Use the table belw t determine if the required certificatin is cmplete: NOTE: If the taxpayer cmpletes the certificatin fr nly ne r tw tax years, and submits the same number f amended returns, d nt questin whether additinal years shuld have been submitted. As lng as the tax years listed n the certificatin are filed, accept that the number is crrect. If The certificatin is attached, and: 1. The amunts wed fr each tax year, including interest, are calculated, and 2. The amunts wed, Then The certificatin is cmplete. Fllw the instructins in Paragraph 8 belw. Any line marked with a # sign is fr Official Use Only 7

8 including interest have been paid, and 3. The amunts paid equal the taxpayer's calculatins, and 4. The taxpayer has cmpleted the sectin stating the specific reasns fr failure t reprt all incme, pay all tax, and submit all required infrmatin returns, 6. The taxpayer(s) have signed the certificatin under penalties f perjury There is n certificatin attached r, the certificatin is attached but: 1. The amunts wed fr each tax year, including interest, are nt calculated, r 2. The amunts wed, including interest, are Call r crrespnd with the taxpayer. If crrespnding, issue 178C, using the apprpriate paragraph(s) t address the specific items missing frm the certificatin. Suspend the case fr 40 days. If the taxpayer respnds with the necessary infrmatin, send the CIS case number t a Any line marked with a # sign is fr Official Use Only 8

9 nt paid r, 3. The amunts paid d nt equal the taxpayers calculatins r, 4. The taxpayer des nt cmplete the sectin stating the specific reasns fr failure t reprt all incme, pay all tax, and submit all required infrmatin returns, including FBAR's, r 5. The taxpayer des nt calculate and r pay the miscellaneus ffshre penalty, r 6. The taxpayer des nt sign the certificatin under penalties f perjury designated mailbx: "*LB&I OVDP Cmpliance" with an explanatin the case is being sent pst assessment and is a Certificatin Reply. Enter CIS case ntes saying referred t LB&I as a "Certificatin Reply". Then fllw paragraph 8 belw. If the taxpayer des nt respnd, treat the case like a nrmal 1040X case. D nt restrict the failure t file r failure t pay penalties and d nt input TC 971 with Actin Cde (AC) 178. NOTE: The 178C letter includes language advising the taxpayer if they d nt respnd, the case(s) will be clsed using nrmal prcedures, s n clsing letter is necessary fr "N Reply" cases. After making the assessment n n respnse cases, the CIS case Identificatin Number t a designated mailbx: "*LB&I OVDP Cmpliance" with an explanatin the case is being sent pst assessment and is a "N Reply." Enter CIS ntes indicating the case was referred t *LB&I OVDP Cmpliance "N Reply". 8. Accunts Management will perfrm the fllwing actins prir t adjusting accunts under the SDO: Review the accunt fr a -Z freeze. If there is a -Z freeze n the accunt, cntact CI t determine whether an amended return filed using the Streamlined Freign Dmestic Cmpliance Prcedures can be prcessed. Fllw CI's directin. See -Z freeze instructins at IRM Z Freeze. Review each tax year fr statute cnsideratin. Refer t Statutes fr clearance r assessment when necessary. See IRM 25.6 Statute f Limitatins. Any line marked with a # sign is fr Official Use Only 9

10 Review Cmmand Cde AMDIS fr examinatin invlvement. Fllw the table belw if any f the affected accunts are fund n Cmmand Cde AMDIS. If All affected tax years are in AMDIS Status less than 12 Then Prcess all related amended returns as streamline. Fllw paragraph 9 belw NOTE: Frward the case t Exam, based n the AIMS data (after prcessing as Streamlined) when AMDIS status is 09 r greater and less than 90. Any affected tax year is in AMDIS status 12 r greater Prcess all related amended returns as nrmal 1040X adjustments. D nt restrict penalties. D nt input TC 971 AC 178. Allw the adjustment ntice(s) t generate. Send Letter 916C with the fllwing language using tw pen paragraph(s): "Our recrds shw that the IRS already has an pen examinatin fr ne r mre f the years cvered by yur submissin. Fr this reasn. yu are nt eligible fr the penalty relief prvided under the Streamlined Prcedures." "Yu shuld cntact the examiner assigned t yur pending examinatin t discuss the applicability f penalties and any defenses yu may have fr the years cvered by yur submissin." Ntate CIS case ntes, "Streamline case wrked as nrmal due t pen examinatin." Frward the case t Exam, per the AIMS data, after prcessing. 9. T cmplete adjustments n Frm 1040X filed under the SDO: 1. Input a Transactin Cde (TC) 971 Actin Cde (AC) 178, using the amended return received date as the transactin date, t each affected tax year. TC 971 AC 178 dentes Streamlined Filing Cmpliance. The xclaim tl has been prgrammed t allw AC Ensure the payments are allcated crrectly amng the affected tax years (including the MFT 55 civil penalty mdule) accrding t the calculatins made n the taxpayer certificatin. If nt, fllw nrmal credit transfer prcedures using apprpriate credit freeze cdes t ensure n errneus refunds ccur. 3. Use all nrmal adjustment prcedures, including the use f IAT tls, when making the tax assessment t each tax year, with the fllwing Any line marked with a # sign is fr Official Use Only 10

11 exceptin: Restrict the failure t file and failure t pay penalties n each tax year by inputting TC 160 and TC 270 fr zer dllars. NOTE: If any payments were transferred, use apprpriate psting delay cdes n the adjustment(s) t ensure the adjustment des nt pst befre the payments are psted crrectly 4. Assess the 5 percent miscellaneus penalty n MFT 55 based n the taxpayers calculatin. Input TC 240 with blcking series 52 and penalty reasn cde Allw the adjustment ntices t generate. (Taxpayers are advised n IRS.gv that they may we mre interest r may receive a refund.) 6. After making the assessment, refer any case with 5 r mre freign infrmatin returns (Frms 3520, 3520-A, 5471, 5472, 8938, 926, r 8621) by ing the CIS ID number t "*LB&I OVDP Cmpliance" with an explanatin that the case is being frwarded due t 5 r mre freign infrmatin returns. Enter CIS ntes indicating the case was referred t *LB&I OVDP Cmpliance "5 r mre freign incme statements". NOTE: The ttal f 5 frms is a cmbinatin f all years filed. Fr example submissins cntaining 3 Frms 5471 fr 2011 and 3 Frms 5471 fr 2012 wuld be referred since the ttal is 6. Submissins with a cmbinatin ttaling less than 5 wuld nt be referred. Any line marked with a # sign is fr Official Use Only 11