Form 14654 is the IRS form at the core of the Streamlined Domestic Offshore Procedures.
IRS Form 14654 is specifically designed for U.S. taxpayers residing in the United States who are seeking to come into compliance with their tax obligations regarding previously unreported foreign financial assets and income. It is a crucial component of the Streamlined Domestic Offshore Procedures (SDOP) program offered by the IRS
The IRS’ Streamlined Domestic 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 Domestic 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.
Understanding the Purpose of Form 14654
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 Domestic 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 14654
Along with the general instructions on Form 14654 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 14654 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 Domestic 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 14654 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 14654. To comprehensively assert that – functionally – no IRS punishment awaits a preparer whose errors are chronicled in the Streamlined Domestic 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.
Key Components of Form 14654
Form 14654 consists of several essential sections:
- Taxpayer Information: This section requires the taxpayer provide his full name, address, and taxpayer identification number (TIN), typically his Social Security number.
- Certification: In this section, the taxpayer certifies that he meets the eligibility requirements for the SDOP, including non-willful conduct. The US taxpayer making the disclosure under SDOP certifies that he has filed all required amended tax returns and FBARs. (The SDOP eligibility rules strongly imply that a US taxpayer who failed to timely file any of his last three US income tax returns is not eligible to disclose under the protective provisions of the program).
- Narrative Statement of Facts: This is a critical part of the Form where the US taxpayer explains the reasons for his failure to previously report foreign financial assets and/or income. As discussed above, the US taxpayer must provide a detailed account of the circumstances that led to the non-compliance.
- Miscellaneous Offshore Penalty: a US person disclosing noncompliant foreign financial accounts, assets and/or income must pay a one-time-only penalty equal to 5% of the highest cumulative year-end value of his noncompliant foreign assets (the highest year-end value among the last six year-end dates). Form 14654 reports six (and an optional seventh) years of one’s foreign assets which were noncompliant for FBAR purposes (in the last six years) or for Form 8938 purposes (in the last three years), then identifies the highest composite year-end value under that complex methodology and declares the penalty equal to 5% of the highest cumulative value.
- Signature: The form must be signed and dated by the taxpayer.
- Payment: the submitting US person submits a single paper check (drawn on a US bank) payable to the US Treasury in the amount equal to (a) his tax and interest for the three-year set of amended US income tax returns plus (b) his 5% “Miscellaneous Offshore Penalty.”
Important Considerations for the Form 14654
- Non-Willful Conduct: Demonstrating non-willful conduct is crucial for eligibility for the SDOP. You must provide a detailed explanation of the circumstances that led to your non-compliance.
- Seek Professional Assistance: International tax attorney Andrew L. Jones is highly qualified to provide you swift, effective and fully-confidential representation for your voluntary disclosure:
- He has guided hundreds of clients through the collective disclosure of over $300 million in previously-unreported foreign assets (statistics as of September 2024). Andrew has advised clients with undisclosed or hidden foreign bank accounts and financial assets ranging in value from $150,000 to eight figures.
- Not a single one of Andrew’s clients’ Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures filings have ever been challenged or rejected by the IRS.
- Andrew earned his J.D. and LL.M. in Taxation, with distinction, from Loyola Law School, Los Angeles, and has since 2009 limited his work as a tax attorney solely to international taxation and foreign account reporting controversies, compliance and planning.
- A substantial number of Andrew’s clients have successfully disclosed foreign asset noncompliance through the Delinquent International Information Return Submission Procedures and/or the Delinquent FBAR Submission Procedures. Where fact-appropriate and acceptable in risk profile, Andrew has aggressively deployed reasonable cause arguments, winning zero-penalty results in virtually every instance. This is a record of vigorous and effective advocacy which stands in sharp contrast to the risk-avoidant mindset of numerous other international asset disclosure attorneys whose solution for every instance of noncompliance – regardless of the facts – is to disclose via the Streamlined Procedures, leaving their innocent clients to pay an unnecessary penalty.
- Andrew will be your sole point of contact in your voluntary disclosure, from your first call and email to your last. He responds personally to all your calls and messages, personally supervises the accounting phase (amendment of returns and/or FBARs) of your engagement and personally writes every word of your narrative statement (the Certification of Non-Willfulness for asset disclosures via the Streamlined Domestic Offshore Procedures, and the reasonable cause statement for asset disclosures via the Delinquent International Information Return Submission Procedures).
Ask our competition whether they do the same: we think you’ll quickly learn that no other law firm offers this personal service commitment.
Call Streamlined Domestic Offshore Program tax attorney Andrew L. Jones now at (415) 745-1924 for a free, fully confidential consultation to determine if you are eligible for this faster, simpler and less expensive option to solve your foreign account problems!
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!
