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What is the Streamlined Filing Compliance Procedures

What is the Streamlined Filing Compliance Procedures

By Anthony Diosdi

Several years ago the Internal Revenue Service (“IRS”) introduced the Streamlined Compliance Procedures for taxpayers with undisclosed foreign financial accounts. This article describes the Streamlined Compliance Procedures. Unlike the targeted offshore voluntary disclosure programs, where each submission was reviewed by the IRS, under the Streamlined Procedures, the IRS applied its regular audit selection process. With that said, individuals considering entering into the Streamlined Compliance Procedures should understand that it is not an official program offered by the IRS. Instead, the Streamlined Compliance Procedures is merely a filing position. And, as such, the IRS is free to audit a Streamlined Compliance Procedures submission and in appropriate circumstances recommend criminal prosecution and/or additional civil penalties.

Under the Streamlined Compliance Procedures, participants are subject to a 5 percent penalty on the highest aggregate undisclosed foreign account(s) balance for the last three years of non-compliance.  

As discussed above, tax returns submitted under the Streamlined Compliance Procedures are subject to selection for an IRS audit. In other words, there is no assurance that the IRS will accept a submission. As a matter of fact, the IRS’ own website provides the following words of caution:

“Returns submitted under the Streamlined Procedures will not be subject to IRS audit automatically, but they may be selected for audit under the existing audit selection process applicable to any U.S. tax return and may also be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors, and other sources. Thus, returns submitted under the streamlined procedures may be subject to IRS examination, additional civil penalties, and even criminal liability, if appropriate. Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns was due to willful conduct and who therefore seek assurances that they will not be subject to criminal liability and/or substantial monetary penalties should consider participating in the OVDP.”

The Procedure for Making a Streamlined Compliance Disclosure

Any individual participating in the Streamlined Compliance Procedures must submit a certificate to the IRS. The Certificate must include the following:

1. Participants must certify that they failed to report income from one or more foreign financial assets during one or more of the three prior years;
2. Participants must certify that their failure to report and pay taxes with respect to offshore financial assets was “non-willful.” Participants are required to certify the following statement:

“My failure to report all income, pay all taxes, and submit all required information returns, including FBARs, was due to non-willful conduct. I understand that non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.”

The Certificate form goes on to ask participants to “provide specific reasons for your failure to report all income, pay all taxes, and submit all required information returns, including FBARs. If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice.”

In addition, the following acknowledgment must be provided:

“I recognize that if the Internal Revenue Service receives or discovers evidence of willfulness, fraud, or criminal conduct, it may open an examination or investigation that could lead to civil fraud penalties, FBAR penalties, information return penalties, or even referral to Criminal Investigation.”

FBAR Returns That Must be Submitted with a Streamlined Submission

Anyone making a Streamlined submission must file FBAR informational returns for the last six years. If an individual failed to timely file correct or complete FBARs for any of the last six years, the participant must certify that he or she now filed correct FBARs, and must include a statement explaining that the FBARs are being filed as part of the Streamlined Compliance Procedures.

Income Tax Liabilities

Any participant of the Streamlined Compliance Procedures must pay additional income taxes plus interest attributable to omitted offshore income for the prior three years of the financial noncompliance. It is important to note that individuals participating in the Streamlined Procedures must have previously filed income tax returns for the period covered under the program.


Although the Streamlined Filing Compliance Procedures offers a chance for many participants to disclose previously undisclosed foreign financial assets and income, there are significant hazards associated with the Streamlined Filing Compliance Procedures for certain individuals. Anyone considering making a disclosure through the Streamlined Compliance Procedures must consider the following: First, only individuals that negligently or non willfully should consider making a disclosure through the Streamlined Filing Procedures. Second, the Streamlined Compliance Procedures are designed only for participants that filed their tax returns. Individuals with unfiled tax returns cannot participate in the Streamlined Filing Procedures. Finally, in my experience, the IRS tends to audit Streamlined submissions for undisclosed foreign financial accounts that exceed $1 million. Anyone with undisclosed foreign financial accounts over $1 million should understand there is a high probability of an audit and the assessment of additional penalties.

Diosdi Ching & Liu, LLP represents clients through IRS Offshore and Domestic Voluntary Disclosure Programs and Streamlined Compliance Procedures.

Anthony Diosdi is a partner and attorney at Diosdi Ching & Liu, LLP, located in San Francisco, California. Diosdi Ching & Liu, LLP also has offices in Pleasanton, California and Fort Lauderdale, Florida. Anthony Diosdi represents clients in federal tax controversy matters and federal white-collar criminal defense throughout the United States. Anthony Diosdi may be reached at (415) 318-3990 or by email: adiosdi@sftaxcounsel.com.

This article is not legal or tax advice. If you are in need of legal or tax advice, you should immediately consult a licensed attorney.