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A Guide to Bringing U.S. Taxpayers Back into Compliance

Many U.S. citizens and green card holders living abroad fail to realize that living outside of the U.S. does not end their U.S. tax obligations. As a result, expats often fall out of compliance for multiple years before discovering the issue.

Common mistakes expats make include filing late returns without using streamlined procedures, failing to submit required FBARs, underestimating the importance of the non-willful certification, or assuming no filing requirement because no U.S. tax is owed. Each of these mistakes can trigger penalties or disqualify an otherwise eligible streamlined submission.

Fortunately, the IRS offers a practical penalty-relief path to bring non-willfully non-compliant expat taxpayers back into full compliance through the Streamlined Filing Compliance Procedures.

Understanding Streamlined Compliance Procedures

Streamlined Compliance Procedures were introduced by the IRS to encourage voluntary disclosure by taxpayers whose failure to file U.S. tax returns or foreign information returns was non-willful.

Non-willful conduct generally refers to negligence, misunderstanding, or lack of awareness of U.S. tax obligations, not intentional avoidance.

For qualifying expats, streamlined compliance allows taxpayers to catch up on missed filings while avoiding the severe penalties typically associated with international reporting failures. However, where there is evidence of intentional noncompliance, significant unreported income, or prior IRS contact, other disclosure options, such as voluntary disclosure, may be more appropriate.

Foreign vs. Domestic Streamlined Procedures

The IRS provides two streamlined programs:

1. Streamlined Foreign Offshore Procedures (SFOP)

Designed for taxpayers who meet the non-residency requirement.

Key Features:

• Must meet foreign residency test for at least one of the most recent three years
• No Title 26 miscellaneous offshore penalty
• Must file:
  • 3 years of tax returns
  • 6 years of FBARs
  • Form 14653 (Certification of Non-Willful Conduct)

This option is generally the most favorable for expats living abroad because it provides full penalty relief if eligibility requirements are met.

2. Streamlined Domestic Offshore Procedures (SDOP)

Designed for taxpayers who do not meet the foreign residency requirement.

Key Features:

• Subject to a 5% miscellaneous offshore penalty
• 5% penalty applies to the highest aggregate balance/value of foreign financial assets subject to reporting during the covered period
• Must file:
  • 3 years of amended tax returns
  • 6 years of FBARs
  • Form 14654 (Certification of Non-Willful Conduct)

Domestic streamlined filings are commonly used by taxpayers residing in the United States who failed to report foreign assets or income.

Qualifying for Streamlined Compliance Filing

To qualify, a 1040 expat must generally:

• Certify that all failures to report income, file tax returns, and submit foreign information returns were non-willful
• Not be under IRS examination or criminal investigation
• Meet the residency requirements for either foreign or domestic streamlined procedures
  • For joint filers, both must meet the applicable non-residency requirements

Required Streamlined Filing Submission Components

A standard streamlined submission typically includes:

• Three years of delinquent or amended Form 1040 tax returns, including all required international information returns (e.g., Forms 3520, 5471, 8938), even if such forms would normally have been filed separately had the returns been timely filed
  • At the top of the first page of each delinquent or amended return, and each information return the phrase “Streamlined Foreign Offshore” must be written in red to indicate submission under these procedures
• Six years delinquent FBARs (FinCEN Form 114)
  • FBARs must be filed electronically using the FinCEN BSA E-Filing System
  • On the electronic form:
    • Select “Other” as the reason for filing late
    • In the explanation box, enter: “Streamlined Filing Compliance Procedures.”
  • A separate explanatory statement should indicate that the FBARs are being filed as part of a streamlined submission
• A signed Certification of Non-Willful Conduct
  • Form 14653 (Streamlined Foreign Offshore Procedures), or
  • Form 14654 (Streamlined Domestic Offshore Procedures)
  • The original signed certification must be submitted, and copies must be attached to each tax return and information return
  • Copies should not be attached to FBARs
  • Failure to submit a complete and accurate certification will result in the returns being processed under normal procedures, without the benefits of streamlined penalty relief. 

Submission Instructions

All streamlined documents, along with any required payments, must be submitted in paper form. Electronic submissions are not accepted for streamlined tax returns.

Mail the complete package to:

Internal Revenue Service
3651 South I-H 35
Stop 6063 AUSC
Attn: Streamlined Foreign Offshore
Austin, TX 78741
Conclusion

Streamlined Filing Compliance Procedures offer a powerful and effective solution for 1040 expats who have fallen behind on U.S. tax and foreign reporting obligations due to non-willful conduct. When applied correctly, the program allows taxpayers to restore compliance while minimizing penalties and reducing long-term IRS exposure.

By applying a disciplined and informed approach, you can guide expat clients through streamlined compliance with confidence, helping them resolve past noncompliance and move forward with clarity and peace of mind.

As always, Miller Musmar is here to assist with any questions. Feel free to reach out to us at info@millermusmar.cpa or call 703-437-8877 if you need help.

Written by Sara Ghanem, CPA, Audit Department at MillerMusmar CPA.