Correcting Common Form 8621 Errors

File Pursuant to the IRS’s Streamlined Filing Compliance Procedures: Streamlined Domestic Offshore Procedure (SDOP)

The IRS’ popular Streamlined Procedure will eliminate or reduce any applicable Form 8938 and FBAR penalties. The IRS’ popular Streamlined Procedure contains no provisions for a late MTM election so timely filed return rules apply. 

The IRS’s Streamlined Domestic Offshore Procedure (SDOP) is available for a resident U.S. person who non-willfully failed to file an Form 8621 and/or Form 8938 and/or failed to report on a U.S. tax return income related to foreign financial account(s). Note that a taxpayer currently under examination is not eligible for the streamlined program.

In general, a taxpayer is eligible to participate in the streamlined program if his or her failure to file a U.S. tax return and/or Form 8621 was not willful. The streamlined program requires a participant to file federal income tax returns (or amended returns) with Forms 8621 and Form 8938 for 3 prior years, and FBARs for 6 prior years, along with a persuasive declaration (signed under penalties of perjury) attesting that his or her failure to file was not willful. A false certification could expose a disclosing taxpayer to potential civil fraud, Form 8621 and information return penalties, as well as criminal liability. The IRS carefully reviews and scrutinizes every certification.

The IRS will also impose a penalty equal to 5% of the maximum aggregate balance in the unreported foreign financial account(s) during the 3-6 year period.

File Pursuant to the IRS’s Streamlined Filing Compliance Procedures: Streamlined Foreign Offshore Procedure (SFOP)

The IRS’s Streamlined Foreign Offshore Procedure (SFOP) is available for a nonresident U.S. person who mistakenly failed to file an Form 8621 and/or Form 8938 and/or failed to report on a U.S. tax return income related to foreign financial account(s). These procedures are also available for a nonresident U.S. taxpayer who failed to file a federal income tax return (i.e., Form 1040). Note that a taxpayer currently under examination is not eligible for the streamlined program.

In general, a taxpayer is eligible to participate in the streamlined program if his or her failure to file a U.S. tax return and/or Form 8621 and/or Form 8938 was not willful. The streamlined program requires a participant to file federal income tax returns (or amended returns) with Form 8621 and/or Form 8938 for 3 prior years and FBARs for 6 prior years, along with a persuasive declaration (signed under penalties of perjury) attesting that his or her failure to file was not willful. A false certification could expose a disclosing taxpayer to potential civil fraud, Form 8621 and/or Form 8938 and information return penalties, as well as criminal liability. The IRS carefully reviews and scrutinizes every certification.

In general, the IRS will not impose any penalties on a participating nonresident taxpayer.

File Pursuant to the IRS’s Delinquent International Information Return Submission Procedures

A person who has not previously filed a Forms 8621, Form 8938, and/or FBAR, but who has properly filed federal income tax returns that fully reported the income from any foreign account(s), may be eligible for the IRS’s Delinquent International Information Return Submission Procedures. Under the Delinquent International Information Return Submission Procedures, the IRS will not impose a penalty for the failure to file the delinquent Forms 8621, Form 8938, and/or FBAR if you properly reported on your U.S. tax returns, and paid all tax and you have not previously been contacted regarding an income tax examination. Therefore, there can be NO unreported income.

The U.S. person must include a statement that persuasively explains why the forms are being filed late. 

Filing an Amended Return.

A MTM election must be made with timely filed return. While a MTM election cannot be made on a late filed return, a return can be filed to make a MTM election going forward.  By filing a Form 8621 you can transition from default to MTM election going forward. A MTM election will reduce interest charges going forward.

Filing an amended or delinquent Form 8621 outside one of the IRS’s penalty relief programs provides NO audit or penalty protection and therefore requires very careful consideration. The IRS may impose penalties if it later determines that the error was willful or due to negligence. This approach is not recommended due to the lack of penalty protection.