I moved from Canada to the US and never reported my Canadian accounts. What is the 5 percent actually 5 percent of?

5 percent of the highest year-end total, charged once. The IRS builds that base by adding up the December 31 balances and values of the foreign assets that are subject to the penalty for each covered year, then taking the highest of those yearly totals, so a peak an account touched in July doesn’t set the number unless it was still there at year end. Only assets that meet one of three triggers enter a year’s total, an eligible individual’s RRSP or RRIF is left out of the base, and the tax and interest on the unreported income sit outside the penalty and add to it.

Which streamlined procedure applies if I moved from Canada to the US?

It turns on three years, not on where you live now. The domestic procedure is for filers who “fail to meet the applicable non-residency requirement” the foreign procedure sets (IRS, SDOP). The foreign page treats it as met “if, in any one or more” of the three most recent years whose return due date has passed, you had no US abode plus 330 full days abroad as a citizen or green-card holder, or, if you’re neither, you didn’t meet “the substantial presence test of IRC section 7701(b)(3)” (IRS, SFOP). One qualifying year out of three is enough, so check all three.

Procedure	Who its non-residency wording describes	What its own terms charge
Streamlined Foreign Offshore	A non-willful filer who meets the non-residency requirement in any one or more of the three most recent years whose return due date has passed: no US abode plus 330 full days abroad for a citizen or green-card holder, or not meeting the substantial presence test of IRC section 7701(b)(3) for everyone else. One qualifying year out of the three is enough, and the IRS’s own examples include a man who moved to the US and acquired a US abode, and someone who was neither a citizen nor a green-card holder and met substantial presence in two of the three years but not in the third	An eligible filer who follows all of the instructions is not subject to failure-to-file, failure-to-pay, accuracy-related, information return or FBAR penalties, unless an examination finds the original noncompliance fraudulent or the FBAR violation willful. The page carries no miscellaneous offshore penalty at all
Streamlined Domestic Offshore	A non-willful filer who fails that same non-residency requirement, which takes failing it in every one of those three years rather than in the year of the move, and who previously filed a US return, if one was required, for each of the most recent 3 years whose return due date has passed	The Title 26 miscellaneous offshore penalty, 5 percent of the highest year-end aggregate of the assets subject to it, charged once, plus the same relief from the other penalties and the same fraud and willfulness carve-out

Of the three worked examples the IRS prints on that page, the two about someone who has actually moved to the United States both come out in the filer’s favour. One is a man who lived in Germany from the age of five, moved to the United States and acquired a US abode in 2012, and still meets the requirement when the three years tested are 2013, 2012 and 2011. The other is someone who is neither a citizen nor a green-card holder, transferred to the US on 1 May 2012, who met the substantial presence test for 2012 and 2013 but not for 2011, and who meets the requirement on that basis. So a recent mover is often still on the foreign side, where the procedure’s own terms carry no miscellaneous offshore penalty, and the domestic route is the answer only where all three of those years fail. For joint filers, the foreign procedure requires that “both spouses must meet the applicable non-residency requirement”, so each spouse needs a qualifying year of their own and a spouse with none takes the joint filing outside the foreign procedure. If your years might still put you on the foreign side, the foreign streamlined path and the 330-day test is the page for that, and you can run your own years through the path finder.

What is the 5 percent streamlined domestic offshore penalty actually 5 percent of?

Of the highest of the year-end totals, which is where most self-computed estimates go wrong. The IRS aggregates the year-end account balances and year-end asset values of the assets subject to the penalty for each year in the covered periods, then selects the highest of those totals (IRS, domestic procedure). It’s charged once, on that one figure. An asset only enters a year’s total if it met one of three triggers in that year, so a fully compliant year enters as zero (IRS, FAQ 6). Tax and interest on the unreported income are separate from the penalty and add to it.

“the highest aggregate balance/value is determined by aggregating the year-end account balances and year-end asset values of all the foreign financial assets subject to the miscellaneous offshore penalty for each of the years in the covered tax return period and the covered FBAR period and selecting the highest aggregate balance/value from among those years” (IRS, U.S. taxpayers residing in the United States).

The form is built the same way, and almost nobody quotes it. Its asset table asks for the “Year-End Balance/Asset Value (state in US Dollars)”, its next line asks for the “Highest Account Balance/Asset Value (enter the highest total balance/asset value among the years listed above)”, and the line after that is the “Miscellaneous Offshore Penalty (Highest Account Balance/Asset Value from above multiplied by 5%)” (IRS, Form 14654). The tax side rides along with it: “the full amount of the tax, interest, and miscellaneous offshore penalty” goes in with the amended returns. Where the unreported income was wages rather than account income, the routing question when the miss was employment income works through that fact pattern.

Which years and which accounts go on the Form 14654 table?

Six years of FBARs, three years of returns, and December 31 figures throughout. The covered FBAR period is “each of the most recent 6 years for which the FBAR due date has passed”, and the covered tax return period runs to the most recent 3 years whose return due date has passed (IRS, domestic procedure). Inside each of those years you “enter the value of the taxpayer’s personal financial interest in each asset as of December 31 of the applicable year”, and “no valuation discounts may be taken” (IRS, FAQs 5 and 6).

Asset in that year	In or out of the base	The condition on that answer
A foreign account that should have been on an FBAR and wasn’t	In	Only for a year inside the covered FBAR period, and only where the FBAR for that year was actually required and missing
An asset that should have been on a Form 8938 and wasn’t	In	Only for a year inside the covered tax return period, and only where the form was required for that year
An asset reported properly whose income wasn’t reported	In	Only where gross income in respect of the asset went unreported in that year; the asset’s own reporting being clean doesn’t take it out
An asset reported on a timely filed Form 3520 or Form 5471	Out	Only where those forms were timely; assets on delinquent 3520s or 5471s stay in the base
Foreign real estate	Out	Only because it was never the kind of asset reportable on an FBAR or a Form 8938; a foreign entity holding it may still be reportable
An employer’s account you had signature authority over	Out	Only to the extent you had no personal financial interest in it, which is the same test that splits a jointly held asset
An eligible individual’s RRSP or RRIF	Out	Only for an eligible individual under Rev. Proc. 2014-55, and you have to say so in the narrative on the form
An asset already in the base that is illiquid or a minority holding	In, at full value	No valuation discounts may be taken on assets subject to the 5-percent penalty; asked how to value stock in a foreign corporation, the IRS’s answer is: “Any reasonable method of valuing the stock, such as using the balance sheet on the Form 5471”
A year in which nothing met a trigger	Zero	The IRS says the amount entered for that year “will be zero”, and the form asks you to write “N/A” next to that year’s total

Two of those rows are the ones people misread in their own favour. Filing a delinquent Form 3520 or Form 5471 now does not pull an asset out: “All assets that meet the definition of ‘foreign financial asset’ in the instructions for Form 8938 and not reported on that form should be included in the 5-percent penalty base, unless the taxpayer reported them on timely filed Forms 3520 or 5471.” And an illiquid or minority holding gets no haircut, because “no valuation discounts may be taken on foreign financial assets subject to the 5-percent penalty”. The same answer is easier on you about how to arrive at the figure in the first place: asked how to value stock in a foreign corporation, the IRS says “Any reasonable method of valuing the stock, such as using the balance sheet on the Form 5471” (IRS, streamlined domestic offshore FAQs). The table is meant to be exhaustive: the form has you declare that “the assets listed in this certification are my only foreign financial assets subject to the 5% miscellaneous offshore penalty” (IRS, Form 14654).

Is my RRSP part of the 5 percent penalty base?

Usually not, if you’re an eligible individual under Rev. Proc. 2014-55. The IRS answers that one directly: “Your Canadian retirement plan will not be included in the 5-percent penalty base” (IRS, FAQ 8). Being out of the base isn’t being out of the reporting, and the same answer says you may still need to report the plan on FBARs or Forms 8938. Where the plan is your only foreign asset and no income from it went unreported, the IRS says you don’t report it under these procedures at all. For a Canadian who moved south, that’s often most of the balance sheet.

“In the narrative statement of facts on Form 14654, please state that you are an ‘eligible individual’ under Rev. Proc. 2014-55.” And on the narrower fact pattern: “You do not need to report your interest in the Canadian retirement plan under the Streamlined Domestic Offshore Procedures” (IRS, streamlined domestic offshore FAQs).

The election history behind that status is its own question, and Rev. Proc. 2014-55 and the RRSP carries it. One related piece of the package is easy to miss: the domestic procedure says “retroactive relief will be provided for failure to timely elect income deferral on certain retirement and savings plans where deferral is permitted by the applicable treaty” (IRS, domestic procedure), so a missed deferral election is dealt with inside the submission rather than being a separate problem.

What am I signing when I sign Form 14654?

Three waivers and a narrative, in exchange for defined terms. You consent to immediate assessment and collection of the penalty, you waive every defense and restriction on assessing and collecting it including a limitations defense, and you waive the right to seek a refund or abatement of it (IRS, Form 14654). What the IRS gives back is its agreement not to assert other penalties on the unreported assets or income, so an eligible filer who follows every instruction may face that one penalty alone, unless an examination finds fraud or a willful FBAR violation.

“I waive all defenses against and restrictions on the assessment and collection of the miscellaneous offshore penalty, including any defense based on the expiration of the period of limitations on assessment or collection.” And: “I waive the right to seek a refund or abatement of the miscellaneous offshore penalty” (IRS, Form 14654). The other side of it, on the same form: “In consideration of the Internal Revenue Service’s agreement not to assert other penalties with respect to my failure to report foreign financial assets … I consent to the immediate assessment and collection of a Title 26 miscellaneous offshore penalty.”

The relief and its carve-out are one sentence on the domestic procedure page: an eligible filer who follows the instructions “will be subject only to the Title 26 miscellaneous offshore penalty and will not be subject to accuracy-related penalties, information return penalties, or FBAR penalties”, “unless the examination results in a determination that the original return was fraudulent and/or that the FBAR violation was willful” (IRS, domestic procedure). The narrative is a condition rather than a formality: “any submission that does not contain a narrative statement of facts will be considered incomplete and will not qualify for the streamlined penalty relief”, and it has to “include the whole story including favorable and unfavorable facts”. You also acknowledge that if the IRS “receives or discovers evidence of willfulness, fraud, or criminal conduct” it may open an examination or investigation. You also agree to keep the records behind the penalty base “until six years from the date of this certification”, and to acknowledge that the amended returns “may report income for tax years beyond the three-year assessment limitations period under I.R.C. section 6501(a)” (IRS, Form 14654). What a file like this costs to prepare is a separate question, and what a streamlined file actually costs to prepare answers it.

Can I use the domestic procedure if I never filed a US return at all?

Not for a year you never filed, and that one is a hard condition. The domestic procedure requires that you “have previously filed a U.S. tax return (if required) for each of the most recent 3 years” whose due date has passed, and it separately bars delinquent income tax returns from these procedures (IRS, domestic procedure). Amended returns are the instrument here. Where returns are missing rather than wrong, the foreign procedure or the general catch-up route may be where your years actually sit.

“You may not file delinquent income tax returns (including Form 1040, U.S. Individual Income Tax Return) using these procedures” (IRS, U.S. taxpayers residing in the United States).

Two beliefs worth correcting, because both send people to the wrong place.

• “I’ve missed my only chance.” A mistaken submission is fixable, on one condition the IRS states in the same breath: if you made a mistake in your submission “and your returns previously submitted are not under examination, you may correct the error by providing corrected amended returns and/or an amended Form 14654” (IRS, streamlined domestic offshore FAQs). Once an examination has started on those returns, this is not the route back. A past quiet amendment doesn’t lock the door either, though “any penalty assessments previously made with respect to those filing will not be abated” (IRS, streamlined filing compliance procedures).
• “My recent years are clean, so I’m too late.” Clean years aren’t a bar, they’re an empty base. Where the most recent three years are fully compliant, the IRS’s own answer is that “there will be no assets in the penalty base for those years” (IRS, FAQ 7).

The condition that does end this route is an open examination: “If the IRS has initiated a civil examination of taxpayer’s returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the streamlined procedures” (IRS, streamlined filing compliance procedures). Every return in the submission also needs a valid Taxpayer Identification Number, and not having one yet isn’t the end of it. The same page says that for someone who is ineligible for an SSN but doesn’t have an ITIN, “a submission may be made under the streamlined procedures if accompanied by a complete ITIN application”, while someone eligible for neither an SSN nor an ITIN will not have the return processed under these procedures. If it turns out no income went unreported at all, the FBAR side has its own lane, and filing late FBARs on their own covers it.

What should I do next?

Build the December 31 record before anyone quotes you a number. For each covered year, list every foreign account and asset, its year-end value in US dollars, whether an FBAR or a Form 8938 was required and missing for that year, and whether the asset’s income reached the return. That table is the penalty base, and the IRS expects you to hold the information behind your own computation and produce it on request. If a letter has already arrived about any year, sort that out first.

“You must maintain your foreign financial asset information supporting the self-certified miscellaneous offshore penalty computation and be prepared to provide it upon request.” The mechanics come after the record and they’re specific: the package goes in on paper, with “Streamlined Domestic Offshore” written in red at the top of the first page of each amended return and each information return (IRS, U.S. taxpayers residing in the United States).

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.