Form 14653 is the IRS form at the core of the Streamlined Foreign Offshore Procedures.
The IRS’ Streamlined Foreign Offshore Procedures offer a path to voluntary compliance – and reduced penalties – to US persons (US citizens, US permanent residents and those ‘substantially present’ in the US, as most US work visa holders are) who failed to file any of the following:
FinCEN Form 114 (Report of Foreign Bank and Financial Accounts, also known as the FBAR), IRS Form 926, IRS Form 3520, IRS Form 3520-A, IRS Form 5471, IRS Form 8621, IRS Form 8865, or IRS Form 8938 and/or failed to pay income tax on earnings from foreign assets.
A critical – arguably, the core – requirement of the Streamlined Foreign Offshore Procedures is establishing that the US taxpayer’s failure to file those Forms and/or report and pay tax on income derived from foreign assets, was non-willful in nature.
The IRS Form which contains the US taxpayer’s argument of non-willfulness is called the Form 14653 (if the disclosure is made under the protective provisions of the Streamlined Foreign Offshore Procedures) or the Form 14654 (if the disclosure is made under the protective provisions of the Streamlined Domestic Offshore Procedures).
Call (415) 745-1924 to receive a free, thorough and completely confidential consultation. You will talk directly with international asset disclosure tax attorney Andrew L. Jones to determine if you are eligible to resolve your noncompliance through the Streamlined Foreign Offshore Procedures! Experience matters, and working with our firm, which limits its practice exclusively to foreign asset voluntary disclosure cases, means no surprises and no learning on the job.
The IRS Definition of Non-Willfulness According to Form 14653
Along with the general instructions on Form 14653 to “provide specific facts on this form or on a signed attachment explaining your failure to report all income, pay all tax, and submit all required information returns, including FBARs,” the IRS specifically demands a “narrative statement of facts.”
The IRS then elaborates that in this narrative statement of facts, the submitting US person must:
Provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Include the whole story including favorable and unfavorable facts. Specific reasons, whether favorable or unfavorable to you, should include your personal background, financial background, and anything else you believe is relevant to your failure to report all income, pay all tax, and submit all required information returns, including FBARs.
Additionally, explain the source of funds in all of your foreign financial accounts/assets. For example, explain whether you inherited the account/asset, whether you opened it while residing in a foreign country, or whether you had a business reason to open or use it. And explain your contacts with the account/asset including withdrawals, deposits, and investment/management decisions. Provide a complete story about your foreign financial account/asset. If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice. If married taxpayers submitting a joint certification have different reasons, provide the individual reasons for each spouse separately in the statement of facts.
Those IRS instructions, while exhaustive, are still nothing more than a brief checklist of some of the relevant details necessary to establish non-willfulness (aka negligence).
We think several of those sentences are worth a closer look:
- “Include the whole story including favorable and unfavorable facts.”
This is a critical point: while it can be tempting to leave out problematic details in one’s story, most omissions are glaring. Often, leaving out a critical detail is highly visible to the reviewing IRS Revenue Agent. For example, not discussing one’s reasons for creation of the foreign account, or not discussing one’s funding or management of the account over time, would be glaring in its omission. We believe the IRS has an internal ‘mental checklist’ of information it wants to see addressed in a Form 14653 narrative statement, and that list is certainly longer than the handful of details specifically mentioned in the instructions. Leaving out one of those critical details naturally merits the IRS’ suspicion: what could be so bad that the taxpayer won’t tell us?
It is generally our approach then, in maintaining our firm’s 100% success record in filings under the protective provisions of the Streamlined Foreign Offshore Procedures, to tell the whole story, even if certain facts are inconvenient. What distinguishes our approach is not to simply show all facts – negative or not – but where the facts are problematic, to explain them in depth, and ideally neutralize the bad facts. In our experience, reciting all relevant facts – good and bad – and neutralizing the bad ones, yields a better result than offering a one-sided recitation. The IRS is well aware that virtually no taxpayer has behaved perfectly and yet was noncompliant. It expects and believes that every case will have positive and negative factors. Reciting the complete story wins authority and believability from the IRS, who then weighs all those factors to conclude whether or not the noncompliance met the standard of non-willfulness.
A further sentence almost merits more discussion:
- “If you relied on a professional advisor, provide…a summary of the advice.”
US taxpayers with foreign asset noncompliance are often hesitant to mention the role of their preparer in their unintentional noncompliance, even where their income tax return preparer is clearly at fault. This is typically due to the taxpayer’s sense of loyalty or friendship to that income tax return preparer, and often amplified by the fear that ‘something bad will happen’ to the preparer if the preparer’s errors are documented in a narrative submitted to the IRS.
This groundless fear merits a firm response:
- First and foremost, IRS Form 14653 clearly instructs the user to tell the whole story. Not mentioning errors by one’s income tax return preparer – no matter the innocent motive in omitting that part of the story – defies the IRS’ clear instructions. Such omissions are no more advisable than omitting part of the story which casts the US taxpayer himself in a bad light.
Failing to discuss the actions and inactions of one’s preparer, particularly when that preparer’s name appears directly on the “Paid Preparer” block of the tax returns he prepares, is an omission which is as glaring as any we could imagine. Deliberately omitting that part of the taxpayer’s story will, like any other ‘visible’ omission, be met with suspicion by the IRS – and potentially draw follow-up questions. Thus, a taxpayer who attempts to ‘protect’ his tax return preparer (the question of whether there is any actual threat from which the preparer requires protection is discussed immediately below) will likely fail in that effort: there is no practical way to pretend one didn’t have an income tax return preparer!
- Second, and just as importantly, there is no substantive threat from which the preparer requires protection. In our firm’s experience, the IRS is well aware that income tax return preparers cannot know everything in the entire US Tax Code, and do not punish in any direct (or even, to our awareness, any indirect) way an income tax return preparer whose errors and omissions are discussed in a US taxpayer’s Certification of Non-Willfulness attached to a Form 14653. To comprehensively assert that – functionally – no IRS punishment awaits a preparer whose errors are chronicled in the Streamlined Foreign Offshore Procedures narrative statement, would be prove a negative.
Our firm is aware of no penalty provisions relating to FinCEN Form 114 (Report of Foreign Bank and Financial Accounts, also known as the FBAR), IRS Form 926, IRS Form 3520, IRS Form 3520-A, IRS Form 5471, IRS Form 8621, IRS Form 8865, or IRS Form 8938 noncompliance under which one’s preparer is made to pay the penalty if the preparer was the reason for the noncompliance.
Said another way, no US law calls for the preparer to pay non-filing penalties (for any of the preceding obligations) in lieu of the taxpayer himself. In multiple prior cases in which a former preparer at fault for noncompliance was represented by defense counsel, never once has that defense counsel been able to point to any substantive punishment that awaited his tax return preparer client if the preparer was to admit his fault for the US taxpayer’s noncompliance.
What is IRS Form 14653?
IRS Form 14653 is part of the Streamlined Foreign Offshore Procedures, a program designed by the IRS to help certain U.S. taxpayers who have failed to report their foreign financial assets or pay tax on foreign income but can certify that their failure was non-willful. The Form serves as an official declaration in which the US person certifies that his failure to report foreign assets and/or associated income was due to non-willful conduct—meaning it was the result of negligence, inadvertence, mistake, or a good-faith misunderstanding of his tax obligations.
Form 14653, as part of a disclosure under the Streamlined Foreign Offshore Procedures, allows the US taxpayer to avoid the severe penalties resulting from foreign reporting failures, such as failing to file an FBAR or IRS Form 8938 (Statement of Specified Foreign Financial Assets).
Who Should File IRS Form 14653?
Form 14653 is specifically for U.S. persons who meet an unusual ‘nonresidency’ test requiring that in at least one or more of the last three tax years (for which the tax return filing deadline has passed), the US person was not inside the US more than part or all of 35 days.
Unique to the Streamlined Foreign Offshore Procedures program (as distinct from the Streamlined Domestic Offshore Procedures), SFOP allows for participation by US persons who have failed to file some or all of their required US income tax returns. (SDOP, by contrast, implicitly requires that the participant have timely filed, if required – as almost all are – one’s US income tax return, Form 1040, for at least the last three tax years).
The last, and critical, element of disclosure under the protective provisions of the Streamlined Foreign Offshore Procedures) is establishing, via Form 14653, that one’s noncompliance was due to non-willful conduct. If one’s noncompliance was in fact willful – which is a complex legal standard best analyzed by an international tax attorney – one should not disclose under this program, but instead, strongly consider disclosure under the IRS’ Voluntary Disclosure Practice.
Why Is IRS Form 14653 Important?
Failing to report foreign financial assets and income can lead to substantial penalties, and in some cases, even criminal prosecution. The penalty for a negligent failure to file an FBAR is, as of 2024, $16,117, while willful failure to file the FBAR can be penalized by a penalty of the greater of $161,166 or 50% of the value of the noncompliance foreign financial accounts.
IRS Form 14653, as a core element of a protective disclosure under the Streamlined Foreign Offshore Procedures, offers a way to avoid these penalties if you meet the eligibility requirements and can certify your non-willful conduct.
This Form, along with the SFOP, is especially beneficial for U.S. taxpayers living abroad who were unaware of their US tax obligations or were merely negligent in their failure to meet their US tax obligations. Instead of facing harsh penalties, taxpayers can correct their reporting mistakes, pay any tax owed, and go forward on a fully-compliant basis.
How to File IRS Form 14653
Filing Form 14653 as part of the Streamlined Foreign Offshore Procedures involves several key steps:
- Prepare Delinquent or Amended US Income Tax Returns: You must file amended or late U.S. tax returns for the last three tax years for which the due date has passed. These tax returns should include any foreign income or other assets that were previously unreported.
- Submit FBARs: You will need to file the FBAR (FinCEN Form 114) for any of the last six years that you held foreign financial accounts with a cumulative value in excess of $10,000.
- Complete IRS Form 14653: This form requires detailed information about your non-compliance and an explanation of why your failure to report foreign assets and income was non-willful. It’s essential to provide an honest and accurate narrative, as you are certifying this information under penalty of perjury.
- Submit Form 14653 and Required Documents: Once you’ve completed your tax returns, FBARs, and Form 14653, you will need to send all these materials in paper form together in one package to the specific IRS Service Center (in Austin, Texas) which receives and processes these submissions. (The only exception to this submission process is the FBARs, which are digitally filed with FinCEN.)
Key Sections of IRS Form 14653
The form includes several critical sections that must be completed accurately:
– Personal Information: This includes your name, Social Security number, and other identifying information.
– Amounts of tax due for each of the last three years (and statutory interest due on those amounts)
– Explanation of Non-Willfulness: The most important part of the form is the section where you provide a detailed explanation of why your non-compliance was non-willful. The IRS will evaluate your narrative to determine if you qualify for the Streamlined Foreign Offshore Procedures.
– Certification: You must sign the form, certifying under penalty of perjury that all the information provided is true and correct.
Why Use the Streamlined Foreign Offshore Procedures?
The Streamlined Foreign Offshore Procedures are designed to help U.S. taxpayers living abroad who have in one of a variety of ways, failed to meet their US tax and informational reporting requirements. By filing Form 14653 and following the SFOP, taxpayers can:
– Avoid significant penalties for failing to report foreign financial assets and instead pay zero penalty
– Avoid the risk of criminal prosecution for failing to meet their U.S. tax obligations.
– Become fully compliant with U.S. tax laws and avoid future issues with the IRS.
Call IRS Streamlined Foreign Offshore Procedures tax attorney Andrew L. Jones now at (415) 745-1924 for a free, fully confidential consultation to determine if you are eligible to solve your foreign account problems through the Streamlined Filing Compliance Procedures or the Delinquent International Information Return Submission Procedures!
Every foreign account or asset disclosure is unique and you will get personalized service directly with Andrew, with access evenings and weekends to meet your schedule.
Call now – (415) 745-1924!
