Unfiled U.S. returns and catching up

I am behind on U.S. taxes. What are my options?

It depends on what you missed and why. The main routes for people living in Chile are:

• Streamlined Foreign Offshore Procedures: for people living abroad who missed returns, income or FBARs by mistake. This is the usual path, and it carries no penalties when you qualify.
• Delinquent FBAR Submission Procedures: for people who filed their tax returns and reported all income, but did not file FBARs.
• Delinquent International Information Return procedures: for missed forms such as 5471 or 8938 when the income was reported, with a statement of reasonable cause.
• Voluntary disclosure: for cases where the conduct may have been willful. This one needs a lawyer, not just a preparer.

Who qualifies for the Streamlined Foreign Offshore Procedures?

Two conditions must both be true:

• You lived abroad. For U.S. citizens and green card holders: in at least one of the three most recent years whose due date has passed, you had no U.S. home and were physically outside the United States for at least 330 full days. Most people who moved to Chile meet this easily.
• The failure was non-willful. It came from negligence, inadvertence, a mistake or a good-faith misunderstanding of the law. Not knowing that U.S. citizens abroad still file is the classic example.

The procedures are not available if the IRS has already started an examination of you for any year.

What do I file?

• Three years of tax returns: Form 1040, or 1040-X if you filed but left out income, for the three most recent years whose due dates have passed, including information returns such as Forms 5471, 8621 and 8938.
• Six years of FBARs: for the six most recent years whose FBAR due dates have passed, filed electronically with FinCEN.
• Form 14653: a signed certification that you qualify and that the failure was non-willful, with a specific narrative of the facts.
• Payment: any tax and interest due for the three years. For many people in Chile the foreign tax credit brings this to zero or close to it.

What are the penalties?

If you qualify and follow the procedures fully, the IRS does not impose failure-to-file or failure-to-pay penalties, accuracy-related penalties, information return penalties or FBAR penalties for the years covered. That protection generally holds even if the returns are later examined, unless fraud or willful FBAR violations are found. Penalties already assessed before you file are not removed.

People who live in the United States use a different version, the Streamlined Domestic Offshore Procedures, which carries a 5% penalty on certain foreign assets. Living abroad is what makes the foreign version penalty-free.

Mistakes to avoid

• Quiet filing: sending old returns or FBARs without the Streamlined certification. They are processed as ordinary late returns, without penalty protection.
• A weak narrative: Form 14653 needs a specific, truthful explanation. A generic sentence invites questions.
• Missing forms: leaving out Form 5471 for a Chilean company or Form 8621 for fondos mutuos means the submission is incomplete.
• Waiting too long: once the IRS contacts you, the Streamlined route closes.

A sensible first step

Before filing anything, list which years you lived abroad, which U.S. returns and FBARs you did file, your types of income, and your Chilean accounts and companies. With that map, the right procedure and the exact years become clear. Please keep Social Security numbers and account details out of any first message.

Common questions