Podcast | Streamlined Amnesty Program

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For more information, read Lynn’s latest blog article, FAQs About the IRS Streamlined Amnesty Program.

Transcript

Andrea Sardone
It’s tax season. The tax filing deadline for individuals is April 15th. While the IRS may scare many people, our show today will discuss its softer side and the most utilized program it offers, the IRS Streamlined Amnesty Program.

Our guest today is Lynn Eller, a PBMares International Tax Practice partner. With over 30 years of experience preparing tax returns for US citizens and non-citizen US residents, it’s safe to assume that Lynn has probably seen just about everything when it comes to filing returns. In addition to her CPA, Lynn holds a personal financial specialist designation and has extensive expertise in assessing the tax implications of investments, retirement plans, insurance, and estate planning.

So, Lynn is the perfect person to help us understand the Amnesty Program. Hi, Lynn! Thanks for joining us.

Lynn Eller
Hi Andrea. Maybe the first question is, what is the IRS Loan Amnesty Program? Well, this is a fun topic because it’s a very positive topic. We’re all usually afraid of the IRS, but this is one area where they are very, very generous. So I want to just kind of explain.

Andrea
Right, that was my first question.

Lynn Eller
What it is, and who is most likely to use it? So, basically, the amnesty programs help delinquent taxpayers—taxpayers who haven’t filed at all for many, many years—get caught up with no or minimal penalties. Now, who? The general folks who usually fall into this and need this are people who live overseas.

With the kind introduction you gave me, Andrea, I should mention that I’m the international tax niche leader of PBMares. That’s why I’m very familiar with the Amnesty Program. It helps U.S. citizens who have moved overseas and don’t realize they need to keep filing every year. U.S. citizens file and claim their worldwide income yearly, no matter where they live.

Even if they’re filing and live in another country, the streamlined procedure is often used for these folks who did not know they had to keep filing in the US. The other reason it’s very commonly used by international US citizens living abroad is that penalties for certain forms related to disclosures when you live overseas are pretty steep, okay?

Andrea
Okay, Lynn, let’s start with some basics. What is the streamlined amnesty program?

Lynn Eller
So, the Streamline Amnesty Program is a very lenient, nice offering by the IRS. It allows individual U.S. taxpayers, to get caught up on their U.S. filings when they have missed some of their prior years.

Andrea
So, they can mistakenly miss it. Basically, I didn’t mean to not file, I just forgot or I didn’t realize. Is there something about how you can tell the IRS, and how do they actually communicate that?

Lynn Eller
Right. So how do you get away with getting caught up without any penalties? It has to be non-willful. And that’s not that high of a bar. Basically, it can’t be criminal or fraud, but simply not knowing that you needed to file and not understanding the tax law will allow you to be part of this program.

Andrea
That’s pretty neat because I tried to tell a state trooper on a recent speeding ticket that I didn’t know I wasn’t supposed to speed. So that’s not how this works, right? That would be non-willful conduct. As long as it’s not fraudulent, it’s not criminal, and they’ll say, okay, you’ve told us. So what happens if you don’t tell? What happens if you just try to keep it a secret?

Lynn Eller
Right. There are always some guardrails. There are always some parameters. You only get this good deal if you fall under certain parameters, which are geared towards people who live overseas, mainly. It’s geared towards those U.S. citizens who should have been filing every year, should have been claiming some foreign income.

And sometimes it’s not necessarily going to end up in extra taxes, but it’s just some disclosures that those, you know, time out.

Andrea
Which one was it? As far as the IRS is concerned, as long as you basically fess up, you’re okay, right? You get into trouble when you don’t come clean. Is that correct?

Lynn Eller
Yeah, in a way, you’re right. The IRS is actually generally very lenient when you confess before you’re caught. That’s exactly right.

Andrea
So you mentioned something about non-willful conduct. What are some examples of that?

Lynn Eller
To be part of this streamlined program – to get caught up and without minimal penalties – it has to be non-willful. The delinquency has to be non-willful. And non-willful, it just means it’s not criminal. There’s no criminal intent. There’s no fraud intention. It’s not a high, high bar. So even negligence can be non-willful. So definitely I have done this for many people who need to get caught up and it’s likely you will be eligible for this.

Andrea
Okay, so that’s good news. Again, this is a nice side of the IRS. Just work with them, and they’ll work with you, right? So who’s eligible for this again? Is it primarily for US citizens living abroad, or are there people who are US citizens living in the US taking advantage of this?

Lynn Eller
Yes, it’s more widely used by US citizens living abroad because that’s where you get the full penalty abatements for using this procedure. Those are the folks who frequently forget they need to file. Those folks living overseas don’t realize some of them may have just simply been born to a US parent and have never lived in the US. And then they grow up and have jobs and they don’t realize they need to file in the US. So those are the most common folks that can use this.

So here are the common folks for whom we do these streamlined procedures. Both of their parents are UK citizens, let’s say. But they came, their parents were on a temporary assignment in New York City, and they were born in New York City. Well, guess what? They’re US citizens, these individuals, and they should have been filing every year.

But they moved back to the UK and they don’t really know. If they are a dual citizen, they don’t realize they have to file in the US.

Andrea
That’s interesting. Would that be if they worked in the US, or were they US citizens who went back and worked in the United Kingdom and then had to file? I’m just trying to sort this out.

Lynn Eller
Yeah, that’s a good point because they have the same issue. They’re trying to sort it out too. The US is pretty unique. If you’re a US citizen and you file every year, or if you have a filing requirement you file every year a US tax return and report your worldwide income, no matter where you live, as long as you’re a US citizen.

Andrea
Whoa, I did not know that. I’m trying to think if I know anybody I need to tell. So that’s quite interesting. I didn’t even realize that. You know, these international tax laws can be tricky, can’t they? I mean, there’s a lot to think about, right?

Lynn Eller
Most people don’t. The main thing is, as you mentioned earlier, it’s best to come clean as soon as you realize it. 14 years ago when FATCA, it’s another rule that came in where the Banking Transparency Act, these folks now trying to get a bank account in the UK. And the bank asks them, are you a US citizen? And they say yes. And then they find out, oh, I’m not going to give you a bank account without all this extra paperwork because you’re a US citizen, and this law that requires me to get all this paperwork. So that’s when that comes up. And the important thing to know is that we can. The IRS has a lot of grace with it. We just need to go through a lot of paperwork. Likely, you won’t owe any additional tax if you’ve been paying the foreign tax. So it’s not a problem. And we do this all the time for folks. So it’s easy enough.

Andrea
So, Lynn, you have written an article about this on our website, and we’ll put a link in the program notes if people want to read more. But I do recall reading about it. Do you say SFOP and SDOP or SFOP and SDOP?

Lynn Eller
Yeah, so there’s the Streamlined Foreign Offshore Procedure and the Streamlined Domestic Offshore Procedure.

This procedure is available for those who are not overseas. It isn’t as favorable, so we don’t do it as often because there is a reduction in penalties, but not a complete removal. And there are other avenues for amnesty for people who are in the US. So we see this more heavily used for US citizens abroad.

Andrea
How do you find out? Do you get approved or accepted? How does the IRS tell you you’re good? I mean, what happens if you’re successful? Or do you do all this and then just kind of wait around? I mean, how do people find out?

Lynn Eller
Clients will ask us, am I in good standing now? Because they’re coming to us because they’re suddenly aware of this, and they’re nervous. And then they ask us, OK, we submitted all this paperwork. Am I good now? And so, with the IRS, no news is good news. They really won’t give you a stamp of approval. But if they don’t ask for more clarification or want to review anything which they typically don’t, they’re not. They’re rather easy on you if all your, you know, if you’ve presented the paperwork correctly and it works well.

Andrea
So, no news is good news when it comes to the IRS. That’s good to remember. Okay, so I’m trying to just kind of summarize what this program is and tell me if I’ve got it right. All right, so like I said, despite the bad press it gets, the IRS has a really nice program, a good program if you’ve been delinquent on filing your taxes. And that delinquency is, you know, from non-willful conduct. So it can’t be fraudulent, it can’t be criminal, it is just kind of an honest mistake. And people make mistakes all the time. So the Streamlined Amnesty Program is an opportunity to basically tell the IRS I made a mistake. Here’s my documentation. And basically, if you don’t hear from them, you’re good. Did I capture the high points?

Lynn Eller
Yes, the other high point is that when folks come to us, they think, oh my goodness, I haven’t filed in 20 years. This is so daunting. You know, I have to file, do I have to file 20 years of tax returns? The other lovely thing to encourage you to do this is that the IRS says you should only go back three years for tax filings and six years for what we call FBARs, which are Financial Bank Account Reporting.

Andrea
FBARS, Financial Bank Account Reporting.

Lynn Eller
Yes. So, in general, you’re not going back to the beginning of the time.

Andrea
So, Lynn, I don’t want to put you on the spot. For everybody listening, Lynn provides her opinion. She’s not saying do this or do that. But, if they didn’t file for 20 years, would it be likely that the IRS would come knocking and ask, where are you? Or could 20 years go by, sort of with non-willful intent? I don’t want to put you on the spot, but I’m kind of like, well, okay, you forgot for 20 years.

Lynn Eller
Yeah. No, I get your question. That goes back to who really uses this. It’s the overseas folks. If you’re in the US and you have any kind of 1099s or W-2s, the IRA is gonna be knocking on your door because they get those too. So it is not the folks that are in the system in the US. The folks overseas, the IRS doesn’t know that you’re a citizen who should be filing until you try to get a bank account. That’s sort of one of the triggers.

Andrea
Gotcha. This is not a strategy just to avoid it altogether, so it’s like, okay, we got that.

Well, you’ve been wonderful and generous with your time, Lynn. I know that this is a very busy time of the year for you and for the rest of your tax colleagues at the firm, so I do appreciate your time. Is there any last thing you want to add?

Lynn Eller
No, thank you, Andrea. I enjoy working in this space, so just reach out if you need any help.

Andrea
Great. The program notes will include a link to Lynn’s article on our website. You can also go to our website and find her article on our blog.