Unreported Foreign Accounts, Trusts, or Companies? The IRS Streamlined Filing Compliance Procedures Remain the Way Back Into Compliance

Milan Solarz-Patel

6 hours ago

9 min read

By Milan Solarz-Patel, Founder & Chief Tax Advisor, Auric Private Client Advisory LLC | October 2026

Carolyn A. Schenck, a Member of Caplin & Drysdale, recently described tax filing season as “a strategic stress test for global wealth.” Her article was originally published by Forbes on March 11, 2026, is available on the Caplin & Drysdale website, and was syndicated by Mondaq. It deserves to be read in full. Below is our own summary of her main points, followed by the point we consider most important for U.S. citizens, green-card holders, and U.S. residents who hold accounts, trusts, or companies outside the United States: the corrective filing she recommends has a name, and that name is the IRS Streamlined Filing Compliance Procedures.

Four takeaways from “Tax Filing Season: A Strategic Stress Test for Global Wealth”

Reporting no longer stops at the border. Wealthy families hold assets, businesses, and homes in several countries, each with its own filings, deadlines, and penalties. The OECD Common Reporting Standard, FATCA, and the spread of beneficial-ownership registers mean that what is disclosed in one country is increasingly visible to the tax authority of another. Discrepancies are found more easily and lead to inquiries.
Offshore structures receive the closest scrutiny. Trusts, private foundations, family investment companies, and holding entities remain legitimate planning tools, but disclosure now reaches settlors, beneficiaries, protectors, and other controlling persons, not only legal owners. A failure to disclose can be penalized even when no tax was due.
Residency and domicile are easy to misjudge. Spending fewer days in a country, or moving mid-year, rarely settles the question on its own. The tests look at homes, family, economic ties, and habitual presence, and an aggressive assumption can produce worldwide exposure, retroactive assessments, and long audits.
Enforcement is selective, and corrective filings are the answer. Ms. Schenck observes that agencies are choosing their cases with care and pursuing them closely, and she recommends vigilance, including voluntary disclosures and corrective filings when mistakes come to light.

Our take. For U.S. persons, the fourth point is the one that matters most. The United States is one of the few countries that taxes its citizens and residents on worldwide income wherever they live, and it attaches a long list of information returns to that obligation. When those returns have been missed through negligence, inadvertence, mistake, or a good-faith misunderstanding of the law, the IRS offers a specific cure: the Streamlined Filing Compliance Procedures. The rest of this post sets out what the United States requires, what a missed filing costs, and how the Streamlined procedures resolve the problem.

What the United States requires: the foreign reporting forms

The principal forms, with links to the official IRS and FinCEN pages for each, are the following.

FBAR (FinCEN Form 114). Required when the aggregate value of a U.S. person’s foreign financial accounts exceeds $10,000 at any time during the calendar year. The FBAR is filed with FinCEN through the BSA E-Filing System, not with the tax return, and is due April 15 with an automatic extension to October 15. See the IRS page Report of Foreign Bank and Financial Accounts (FBAR), FinCEN’s Report Foreign Bank and Financial Accounts page, FinCEN’s filing information, the FBAR line-item filing instructions, and FinCEN’s guidance on filing late.
Form 8938, Statement of Specified Foreign Financial Assets. The FATCA form attached to the income tax return when specified foreign financial assets exceed the thresholds, which begin at $50,000 for an unmarried taxpayer living in the United States and $200,000 for one living abroad. See About Form 8938, the Instructions for Form 8938, the IRS comparison of Form 8938 and FBAR requirements, and the summary of FATCA reporting for U.S. taxpayers.
Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Reports transfers to, ownership of, and distributions from foreign trusts, and gifts or inheritances from non-U.S. persons above $100,000 in a year. See About Form 3520 and the Instructions for Form 3520.
Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner. Filed by the foreign trust; if the trustee does not file it, the U.S. owner must file a substitute Form 3520-A. See About Form 3520-A and the Instructions for Form 3520-A.
Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. Filed by U.S. persons who are officers, directors, or shareholders of certain foreign corporations. See About Form 5471 and the Instructions for Form 5471.
Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Also required of foreign-owned U.S. disregarded entities, including a single-member LLC owned by a non-U.S. person or a foreign trust. See About Form 5472 and the Instructions for Form 5472. We covered this form in Foreign-Owned U.S. LLCs and Form 5472: What Foreign Owners and Foreign Trusts Should Know and in Form 5472: What Foreign Owners of U.S. LLCs Should Know About the New IRS Guidance.
Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities and Foreign Branches. See About Form 8858 and the Instructions for Form 8858.
Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. See About Form 8865 and the Instructions for Form 8865.
Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company. Non-U.S. mutual funds, ETFs, and many insurance-wrapped investments are PFICs. See About Form 8621 and the Instructions for Form 8621.
Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation. See About Form 926 and the Instructions for Form 926.
Schedule B (Form 1040), Part III. The foreign-account and foreign-trust questions that every filer answers under penalties of perjury. See About Schedule B and the Instructions for Schedule B.
For U.S. persons living abroad: Form 2555 (foreign earned income exclusion), Form 1116 (foreign tax credit), Form 8833 (treaty-based return positions), and Form 8854 (expatriation). The IRS International Taxpayers page and Publication 54 collect the rules for citizens and residents abroad.

A taxpayer who has no Social Security number needs an Individual Taxpayer Identification Number (ITIN), applied for on Form W-7. A complete ITIN application submitted with the package is acceptable under the Streamlined procedures.

What non-compliance costs

The IRS publishes a consolidated schedule of international information reporting penalties. In summary:

FBAR. Civil penalties apply per violation and are adjusted for inflation each year. The non-willful penalty now exceeds $16,000 per violation; the willful penalty is the greater of 50 percent of the account balance or an inflation-adjusted floor.
Form 8938. $10,000, with continuation penalties up to $50,000 after IRS notice.
Forms 3520 and 3520-A. The greater of $10,000 or 35 percent of the amount transferred to or received from a foreign trust; 5 percent of an unreported foreign gift per month, up to 25 percent; and the greater of $10,000 or 5 percent of the trust assets owned by the U.S. person for Form 3520-A.
Forms 5471, 8858, and 8865. $10,000 per form per year, with continuation penalties. Form 5472: $25,000 per form per year, with no cap on continuation penalties.
The statute of limitations stays open. When a required international information return is missing, the limitations period for the entire income tax return generally remains open until three years after the return is filed (IRC § 6501(c)(8)).

Ms. Schenck’s first point explains why these penalties are no longer theoretical. Through FATCA reporting by foreign financial institutions and the exchange of CRS data, the IRS often already holds the information before the taxpayer files anything.

The IRS Streamlined Filing Compliance Procedures: the way back

The Streamlined Filing Compliance Procedures are the IRS program for individuals, and estates of individuals, whose failure to report foreign financial assets, pay the related tax, or file information returns, including FBARs, resulted from non-willful conduct, which the IRS defines as negligence, inadvertence, mistake, or a good-faith misunderstanding of the law. The program has two tracks.

Streamlined Foreign Offshore Procedures (SFOP): U.S. persons living outside the United States

Who qualifies. U.S. citizens and green-card holders who, in any one of the three most recent tax years, had no U.S. abode and spent at least 330 full days outside the United States; and non-citizens who failed the substantial presence test in one of those years. “Accidental Americans” born in the United States or to a U.S. parent typically fall here.
What is filed. Three years of delinquent or amended income tax returns with all required information returns; six years of FBARs filed through the BSA E-Filing System; the Form 14653 certification of non-willful conduct; and payment of tax and interest.
The result. No penalties of any kind: no failure-to-file, failure-to-pay, accuracy-related, information-return, or FBAR penalties, and no miscellaneous offshore penalty.
IRS resources. The SFOP page and the SFOP frequently asked questions.

Streamlined Domestic Offshore Procedures (SDOP): U.S. residents

Who qualifies. Individuals who do not meet the SFOP non-residency test and who filed a U.S. tax return for each of the three most recent years. A person living in the United States who has filed no returns at all does not qualify for SDOP and needs a different route.
What is filed. Three years of amended returns (Form 1040-X) with all required information returns; six years of FBARs; the Form 14654 certification and penalty computation; and payment of tax, interest, and the miscellaneous offshore penalty.
The penalty. Five percent of the highest aggregate year-end value of the unreported foreign financial assets during the six-year period, in place of all other penalties, which would generally be far higher.
IRS resources. The SDOP page and the SDOP frequently asked questions.

Points that apply to both tracks

Eligibility ends when IRS contact begins. A taxpayer under civil examination for any year, or under criminal investigation, is ineligible.
A valid taxpayer identification number is required. A Social Security number or an ITIN; a complete ITIN application may accompany the submission.
The submission is on paper. Returns are marked in red ink “Streamlined Foreign Offshore” or “Streamlined Domestic Offshore” and mailed to the IRS in Austin, Texas; the FBARs are filed electronically with the reason “Streamlined Filing Compliance Procedures.”
Section 965. Taxpayers with 2017 or 2018 transition-tax exposure follow the IRS’s special rules for the Streamlined procedures and section 965.
There is no closing agreement. The IRS may still examine the returns, and a certification later found to be untrue voids the penalty relief. The narrative in Form 14653 or 14654 is the heart of the submission and deserves careful, fact-specific drafting.
Willful conduct belongs elsewhere. A taxpayer whose conduct may have been willful should consider the IRS Criminal Investigation Voluntary Disclosure Practice, which begins with Form 14457, rather than the Streamlined procedures.

Why act now

The IRS has narrowed the doors. As of this writing, the IRS page on options available for U.S. taxpayers with undisclosed foreign financial assets lists three: the Voluntary Disclosure Practice, the Streamlined procedures, and the Delinquent International Information Return Submission Procedures. The Delinquent FBAR Submission Procedures, long used by taxpayers who had reported all of their income but had not filed FBARs, no longer appear among them, although they remain in the Internal Revenue Manual at IRM 4.26.16.3.11, Delinquent FBAR Filing Procedures. For most non-willful taxpayers, the Streamlined procedures are now the principal route.
The courts have widened “willful.” Reckless disregard of the FBAR requirement is enough; see our post U.S. Appellate Courts Now Agree That Reckless Offshore Non-Disclosure Constitutes Willfulness. The longer a known problem goes unaddressed, the harder a non-willful certification becomes.
The program is administrative. The IRS created the Streamlined procedures, and the IRS can change or end them, as it closed the Offshore Voluntary Disclosure Program in 2018. A submission made under today’s terms is resolved under today’s terms.
The information is already in the IRS’s hands. FATCA reporting and CRS exchanges mean that waiting rarely improves the position.

How Auric Private Client Advisory LLC helps

More than 25 years of U.S. international tax practice, with senior-level involvement on every matter.
An independent assessment, before anything is filed, of whether the conduct was non-willful and which track applies.
The complete IRS submission: income tax returns, information returns, FBARs, the penalty computation where SDOP applies, and the Form 14653 or Form 14654 narrative.
Our one-page summaries of the Streamlined Foreign Offshore Procedures and the Streamlined Domestic Offshore Procedures are available on our website.

To discuss a Streamlined submission, write to streamlined@auricllc.com or visit www.auricllc.com.

Frequently asked questions

I have never filed a U.S. tax return. Can I use the Streamlined procedures? If you meet the non-residency test, yes, through the Streamlined Foreign Offshore Procedures. If you live in the United States and have not filed for the three most recent years, the Streamlined Domestic Offshore Procedures are not available, and a different approach must be considered.

What does “non-willful” mean? Negligence, inadvertence, mistake, or a good-faith misunderstanding of the law. The specific facts supporting that conclusion must be set out in Form 14653 or Form 14654.

How is the 5 percent miscellaneous offshore penalty computed? Add the year-end values of the unreported foreign financial assets for each year in the six-year FBAR period and the three-year return period, take the highest single-year total, and apply 5 percent.

Can I use the Streamlined procedures after the IRS has contacted me? Not if a civil examination or criminal investigation has begun. Earlier is better.

Do I need a Social Security number? A Social Security number or an ITIN is required; a complete ITIN application may be submitted with the package.