The IRS Form 14653, Certification by U.S. Person Residing Outside of the United States for Streamlined Foreign Offshore Procedures; and Form 14654, Certification by U.S. Person Residing in the United States for Streamlined Domestic Offshore Procedures are both part of the two Streamlined Filing Programs. These include ‘Streamlined Domestic Offshore Filing Compliance Procedure’ (Domestic Program) and ‘Streamlined Foreign Offshore Filing Compliance Procedure’ (Foreign Program)
Taxpayers are required to file either one of these forms to make the certifications necessary to comply with the Streamlined Filing Compliance Program they are participating in. The two forms are different depending on whether the taxpayer is residing inside or outside the United States.
In June 2016, the IRS issued modified forms to address additional information requirements. The following is a brief overview of both Form 14653 and Form 14654 requirements during the Streamlined Compliance Filing Procedure.
Overview of Streamlined Filing Form 14653 & Form 14654
Form 14653 and Form 14654 are filed in the preliminary stage of Streamlined Filing. To qualify for the Streamlined procedures taxpayers must certify that their failure to comply was due to non-willful conduct. In the case of both these forms, the IRS added a ‘Statement of Facts’ section in which the taxpayer needs to provide valid reasons for the failure to file the required tax information form.
Taxpayers need to submit the original form along with delinquent or amended tax returns and information returns, such as: FBAR, Form 8938, etc. that are being filed through the Streamlined Filing Procedure. In addition, a copy of the fact statement needs to be attached to each of these filed tax and information returns.
In the ‘Statement of Facts’ section, the updated forms expanded the instruction and now ask the taxpayer to “Provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Include the whole story including favorable and unfavorable facts. Specific reasons, whether favorable or unfavorable to you, should include your personal background, financial background, and anything else you believe is relevant to your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Additionally, explain the source of funds in all of your foreign financial accounts/assets. For example, explain whether you inherited the account/asset, whether you opened it while residing in a foreign country, or whether you had a business reason to open or use it. And explain your contacts with the account/asset including withdrawals, deposits, and investment management decisions. Provide a complete story about your foreign financial account/asset. If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice. If married taxpayers submitting a joint certification have different reasons, provide the individual reasons for each spouse separately in the statement of facts.”
Form 14653 (For persons residing OUTSIDE the United States – Foreign program)
Form 14653 is filed by U.S. citizens or green card holders residing in foreign countries. In February 2016, the IRS added a section to Form 14653 which requires taxpayers to provide detailed information regarding their presence outside the US during the streamlined procedures submission period. This information is required to confirm whether the US citizen or green card holder meets the non-residency test. In order to be eligible under the foreign program, the taxpayer must not have had a U.S. abode and the taxpayer was physically outside the US for at least 330 full days for each year in the covered three-year period.
Keep in mind, that in case of both the spouses claiming Streamlined Filing Compliance as joint-filers, the non-residency status for the covered 3 years under streamlined filing must be fulfilled by both of them. In addition, the statement of fact for each spouse should be completed separately and attached to the form and filed tax & information returns.
In addition, the taxpayer must certify that:
- He or she failed to report income from a foreign financial asset and pay tax as required by U.S. law [and may have failed to file tax returns and a report of foreign bank and financial accounts (FBAR)]; and
- Such failures resulted from non-willful conduct.
Form 14654 (For persons residing IN the United States – Domestic Program)
Form 14654 needs to be filed by US citizens and residents who failed to meet the non-residency requirement during the period covered under the streamlined filing. The domestic program has more stringent eligibility requirements. The taxpayer must certify that:
- He or she previously filed a U.S. tax return tax return (if required) for each of the most recent three years for which the U.S. tax return due date (or properly applied for extended due date) has passed;
- He or she has failed to report gross income from a foreign financial asset and pay tax as required by law (and may have failed to file an FBAR and/or one or more foreign information returns); and
- Such failures resulted from non-willful conduct.
Besides the residency test, the main differences between the foreign and domestic programs are that only non-resident taxpayers may submit delinquent U.S. tax returns. Also, resident taxpayers are subject to a 5% miscellaneous offshore penalty which must be remitted with the Form 14654. That being said, although the process for the Streamlined filing procedures may seem fairly straight-forward, the challenge is in providing proper and acceptable reasons for the failure. The taxpayer, also, needs to avoid providing unnecessary information and details, which could complicate their tax situation. Therefore, it is always advisable to consult a US tax professional who specializes in Streamlined filing procedures.
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If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of US and Canadian tax laws as well as cross-border compliance.
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