When helping clients get current with filing delinquent returns of prior years, we are always asked the question “How far back do we have to go?” Many U.S. citizens and lawful permanent residents (i.e., green card holders) have discovered, typically upon hiring a new CPA firm, that they have missed required filings of U.S. tax and informational returns for several years, sometimes for over a decade. The thought of complying with such an omission can be overwhelming, however, the rules the IRS has set up to bring one into complete compliance are not so demanding.
Assuming eligibility, both the Streamlined Foreign Offshore Procedures and the Streamlined Domestic Offshore Procedures present a remedy that takes uncertainty out of the equation. Both sets of Procedures only require that the prior three years of tax or informational returns (e.g., Forms 5471, 5472, 3520, 3520-A, 8938, 8621 and 926) be filed with amended returns, and just the prior six years of missed FBARs (FinCEN Form 114). The full amount of the tax and interest due from these returns must be remitted with the delinquent or amended return. Note that any delinquent FBARs should be filed first before the others.
Eligibility for these Procedures first begins with whether a Taxpayer fails the non-residency requirement, which states: 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. Meeting this test means you follow the Foreign Offshore Procedures; failing it requires following the Domestic Offshore Procedures. But, under either one the trigger is failing to file the required returns and/or FBARs, and that omission must be due to non-willful conduct. Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.
Keep in mind that while technically only required under these Procedures to go back three prior years for informational returns, 2017’s section 965 Inclusion must be considered and reported. This effectively requires Forms 5471 (and therefore 965 and related others) to go back to 2017 (or 2018 depending on the client) and all subsequent years to get in compliance.
Compliance is a critical piece in managing a global business, and should not be overlooked. Although the significance and complexity of tax compliance can appear overwhelming, our team at McGuire Sponsel has the expertise to navigate these complexities. Our team strives to promote the practicality of these procedures and encourages all clients doing business on a global scale to bring their tax situations up to date and in full compliance.
Do not hesitate to reach out to McGuire Sponsel’s global business services team with any questions or assistance needed in the areas of international compliance.
Jason Rauhe, CPA is a Principal in the firm’s Global Business Services practice and is responsible for assisting clients and adding depth in all areas of the firm’s international tax consulting services including transfer pricing, and the firm’s compliance expertise.
Rauhe previously served as Director of International Tax at a Top 100 CPA Firm, where he was responsible for the firm’s international tax division and major industry alliance networks.