Any individual who is a U.S. citizen is always taxed on their worldwide income no matter where they are located or where the income is coming from. This program is for those individuals who were expatriates earning income abroad and did not know they needed to still file a U.S. tax return. The program is also for those individuals who were earning money from income sources overseas while living in the U.S., and did not initially report this income on their tax return.
To file under the streamlined program, the individual must file three years of back tax returns. If they have already filed returns, they need to amend for any income not picked up or informational returns not included. The individual must also file six years of back foreign bank account reports. They will also need to complete and sign a streamlined certificate.
The main benefit is a waiver of late filing penalties, underpayment penalties, accuracy-related penalties, information return penalties, and FBAR penalties. If accepted into the program, the IRS will close any years prior to the three years filed under the program even if you would have had a filing requirement. This effectively allows you to get out of paying any tax owed prior to the three year window. You will only pay tax on the three year’s returns and any interest on the amounts. For those individuals who have lived in the U.S. during the 3 year window, there will be a potential offshore penalty.
There is no set expiration date for the streamlined program; however, the IRS has the right to revoke the program at any time. Anyone who qualifies should definitely consider filing under the program as soon as possible.
If you are caught by the IRS you could face penalties of up to 27.5% on the balance of your foreign assets. You will have all open tax years examined which could go back indefinitely and owe tax, interest, and penalties. You may even face jail time and possible criminal penalties if fraud was involved.