Streamlined Filing Compliance Procedures: How They Work

The streamlined filing compliance procedures are the IRS’s route for individuals who missed reporting foreign income and foreign accounts without meaning to. You file three years of returns and six years of FBARs, certify that the failure was non-willful, and pay the tax and interest. If you meet the non-residency test and follow the instructions, there’s no penalty. If you live in the US, you also pay a one-time 5% penalty on the unreported foreign assets. For an American in Canada who never filed, the foreign track is the one to check first.

What are the streamlined filing compliance procedures?

They’re a set of IRS filing instructions for taxpayers “certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct.” Individuals and estates of individuals can use them, whether they live outside the US or in it. The IRS’s main streamlined page sets out the shared rules.

They’re one of three routes on the IRS’s list of options for undisclosed foreign assets:

• IRS Criminal Investigation Voluntary Disclosure Practice, for people worried their conduct was willful.
• Streamlined filing compliance procedures, this page.
• Delinquent international information return submission procedures, for late information returns such as Form 3520 or Form 5471, filed through normal procedures with a reasonable-cause statement.

Streamlined isn’t an application. The IRS says the returns “will be processed like any other return,” with no acknowledgment of receipt and no closing agreement at the end.

Who qualifies for the streamlined procedures?

Anyone who can certify that the failure to report income, pay tax and file the information returns and FBARs was non-willful, has a valid taxpayer identification number, and isn’t under IRS civil examination or criminal investigation. The IRS defines non-willful conduct as “negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.”

The examination rule is broad. If the IRS has opened a civil examination of your returns for any year, “regardless of whether the examination relates to undisclosed foreign financial assets,” you can’t use streamlined. Other limits from the IRS pages:

• TIN: US citizens and resident aliens need a valid SSN. A filer who is eligible for an SSN but doesn’t have one can’t use the procedures (SFOP FAQ 10).
• Earlier quiet fixes: if you already filed amended or late returns on your own, you can still come in, but penalties already assessed on those filings “will not be abated.” Quiet disclosure versus streamlined covers that trade.
• Willfulness worries: the IRS points people who think their conduct may have been willful to the Voluntary Disclosure Practice, with professional advice. Streamlined vs voluntary disclosure is on that line.

SFOP or SDOP: which streamlined track applies?

It turns on a non-residency test. A US citizen or green-card holder qualifies for the foreign track if, “in any one or more of the most recent three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the individual did not have a U.S. abode and the individual was physically outside the United States for at least 330 full days.” Anyone else qualifies by failing the substantial presence test in any one of those years.

Those are the IRS’s words from the Streamlined Foreign Offshore page. On a joint return, both spouses have to meet the test for the foreign track. If you don’t meet it, you’re on the domestic track, which has its own conditions on the Streamlined Domestic Offshore page.

	Streamlined Foreign Offshore (SFOP)	Streamlined Domestic Offshore (SDOP)
Residency	Meets the non-residency test in at least one of the three years	Fails it (on a joint return, one or both spouses fail it)
Returns already filed?	Not required. Never-filed years go in as delinquent Form 1040s, filed years as 1040Xs	Required. You must have filed a return (if required) for each of the three years, and you file amended returns only
What you file	3 years of returns with information returns, 6 years of FBARs, Form 14653	3 years of amended returns with information returns, 6 years of FBARs, Form 14654
Penalty	None, for an eligible filer who follows all the instructions	5% Title 26 miscellaneous offshore penalty, paid with the submission
Penalties waived	Failure-to-file, failure-to-pay, accuracy-related, information return and FBAR penalties	Accuracy-related, information return and FBAR penalties
Mark on each return, in red	”Streamlined Foreign Offshore"	"Streamlined Domestic Offshore”

The domestic page says “You may not file delinquent income tax returns” under it, so someone in the US who never filed can’t use SDOP at all. The abode question, the one-year rule and the joint-filer cases are worked through in SDOP vs SFOP.

What do you file under the streamlined procedures?

Three years of returns, six years of FBARs, a signed certification, and payment. The returns cover “the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed,” and the FBARs “the most recent 6 years for which the FBAR due date has passed.” Information returns go in with the returns, “even if these information returns would normally be filed separately.”

Step by step, from the IRS’s own instructions:

1. Returns: Form 1040 for a year never filed (foreign track only), Form 1040X for a year already filed, each with its information returns, such as Forms 3520, 5471 and 8938, and Forms 3520-A, 5472, 926 and 8621 on the domestic list.
2. Marking: “Streamlined Foreign Offshore” or “Streamlined Domestic Offshore” in red at the top of the first page of each return and each information return.
3. Certification: Form 14653 (foreign) or Form 14654 (domestic), the original signed, a copy attached to each return and information return, none to the FBARs. The foreign form is walked through in Form 14653 line by line.
4. Payment: all tax and interest, with your taxpayer identification number on the cheque, plus the 5% penalty on the domestic track.
5. FBARs: filed electronically through FinCEN’s BSA E-Filing System, choosing “Other” as the late-filing reason and entering “Streamlined Filing Compliance Procedures” in the explanation box.
6. Mailing: on paper only, “electronic submissions will not be accepted,” to the IRS in Austin at the address on each track’s page.

Canadian retirement plans get specific relief. If you’re an “eligible individual” under Rev. Proc. 2014-55, the FAQs say you’re treated as having made the treaty deferral election for an RRSP or RRIF and should say so in the narrative (SFOP FAQ 2). The foreign track’s instructions note that Form 8891 is no longer required. How the RRSP, TFSA and RESP are each reported is in Canadian accounts in a streamlined filing.

How is the 5 percent SDOP penalty calculated?

It’s 5% “of the highest aggregate balance/value of the taxpayer’s foreign financial assets that are subject to the miscellaneous offshore penalty” across the covered years. You total the year-end values of the assets in the penalty base for each of the six FBAR years, pick the highest year, and multiply by 5%. It’s charged once, not per year.

An asset is in the base for a year if it should have been on an FBAR and wasn’t, should have been on Form 8938 and wasn’t, or was reported while its income wasn’t (IRS, SDOP). The domestic FAQs narrow it further:

• Compliant years count as zero. FAQ 6: for a year an account was FBAR-compliant, and for the last three years Form 8938 and Form 1040 compliant, “the amount entered on the form will be zero.”
• RRSPs and RRIFs are out for an eligible individual under Rev. Proc. 2014-55: “Your Canadian retirement plan will not be included in the 5-percent penalty base” (FAQ 8).
• Foreign real estate is out if it isn’t the kind of asset reportable on an FBAR or Form 8938 (FAQ 2).
• No personal financial interest, no penalty. An employer account you could only sign on isn’t meant to be in the base (FAQ 1).

The full mechanics, including which years and accounts go on the Form 14654 table, are in what the SDOP 5 percent is 5 percent of.

What happens after you file a streamlined submission?

Usually nothing you’ll see. The returns are processed like any other, the IRS doesn’t acknowledge receipt, and there’s no closing agreement. They aren’t audited automatically, but they “may be selected for audit under the existing audit selection processes,” and the IRS may check them against information from banks and advisors.

On the foreign page’s wording, the penalty protection holds even if a streamlined return is audited, “unless the examination results in a determination that the original tax noncompliance was fraudulent and/or that the FBAR violation was willful.” Two limits sit next to it on the IRS pages:

• If the IRS finds additional tax on a streamlined return, it can assert the normal penalties on that additional deficiency.
• From then on you file “according to regular filing procedures,” and the Austin address can’t be used for later years.

If you find a mistake after mailing and the returns aren’t under examination, you send amended returns and an amended certification marked in red (SFOP FAQ 9). What happens after a streamlined filing goes further into audit risk and the years that follow.

When can’t you use the streamlined procedures?

When the IRS already has your file open, when the conduct was willful, or when the facts don’t fit either track. An open civil examination of any year, or a criminal investigation, ends eligibility. So does being eligible for an SSN without having one. Someone in the US who never filed the original returns can’t use the domestic track.

• Only the RRSP is wrong. If your only issue is having reported RRSP or RRIF earnings you could have deferred, the FAQs say not to use streamlined and to amend normally or seek the Commissioner’s consent under Rev. Proc. 2014-55 (SFOP FAQ 5, SDOP FAQ 11).
• Only the RRSP, on the domestic side. If an eligible individual’s Canadian retirement plan is the only foreign asset and there was no unreported income, SDOP FAQ 9 says you don’t report it under the domestic procedures.
• The returns were right. Both tracks are for people who failed to report income from a foreign financial asset. If the income was reported and only FBARs are missing, see late FBARs, delinquent filing or streamlined.
• Old OVDP letters. Anyone who sent an OVDP voluntary disclosure letter on or after July 1, 2014, can’t use streamlined.

What streamlined costs

There’s the IRS side and the preparer side. On the foreign track the IRS side is the tax and interest on the three returns; on the domestic track add the 5% penalty. What a preparer charges depends mostly on the accounts and forms involved, and our numbers for Canadian files are in what a streamlined package costs for a Canadian.

The package is always the most recent three return years and six FBAR years on the day you file, so waiting doesn’t make it smaller. It does leave time for the IRS to open an examination first, and that closes the route.

Every streamlined guide on this site

Which route fits

• SDOP vs SFOP: the non-residency test, abode and the one-year rule.
• Streamlined Foreign Offshore Procedures: the foreign track from eligibility to mailing.
• Streamlined Domestic Offshore and Form 14654: what the 5% penalty base includes.
• Late FBARs: delinquent filing or streamlined: when the returns were right and only FBARs are missing.
• Unreported employment income: when the missed income was wages, not account income.
• Quiet disclosure vs streamlined: what just filing going forward does and doesn’t get you.
• Streamlined vs voluntary disclosure: where willfulness changes the answer.
• FBAR penalties decision tree: the penalty amounts behind each route.

Who you are

• Green-card holders living in Canada: streamlined and the residency questions a green card adds.
• Canadian snowbirds who became US tax residents: substantial presence and the closer connection exception.
• Retirees with Canadian pensions: CPP, OAS and RRIF payments in the package.
• Self-employed and business owners: Schedule C, self-employment tax and Form 5471.
• Married couples and joint filers: when both spouses have to qualify.
• Americans abroad outside Canada: the foreign track for other countries.

What you hold

• RRSP, TFSA and RESP in streamlined: how each Canadian account is reported.
• Canadian mutual funds and PFICs: Form 8621 inside a catch-up.
• Cryptocurrency in a streamlined filing: exchanges, wallets and FBAR.

The paperwork

• Form 14653 line by line: the foreign certification, section by section.
• Writing the non-willfulness certification: the narrative the IRS reads.
• Why streamlined submissions get rejected: the errors that cost the penalty relief.

After and alongside

• What happens after a streamlined filing: audit risk and the years after.
• State tax after streamlined: what the federal program doesn’t cover.
• CRA VDP alongside IRS streamlined: when you’re behind on both sides.
• What streamlined costs for a Canadian: preparer fees and what moves them.

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