Tax Analyst’s reported some of the key comments made by IRS Attorney Dan Price at the 11th Annual University of San Diego School of Law – Procopio International Tax Institute. The course panel he discussed was – Course 10: Current Practical Problems for Taxpayers in OVDP and Streamlined.
The article written by Ms. Amanda Athanasiou provided good coverage of comments from IRS Office of Chief Counsel Attorney Dan Price about the streamlined procedure. See, the complete article that was published October 27, 2015, Confusion Over Offshore Accounts Prompts IRS Response, Worldwide Tax Daily and Tax Notes Today: News Stories.
The common fact pattern is that many U.S. citizens around the world have simply not filed U.S. federal income tax returns. Many of them were unaware of the requirements and/or they thought in good faith they were not required to file since their income levels were below the “foreign earned income” exclusion amounts. See a prior post, March 24, 2014, The Foreign Earned Income Exclusion is Only Available If a U.S. Income Tax Return is Filed.
The streamlined procedure for U.S. citizens residing overseas does not require that they have previously filed U.S. income tax returns. See, U.S. Taxpayers Residing Outside the United States: The following streamlined procedures are referred to as the Streamlined Foreign Offshore Procedures. Eligibility for the Streamlined Foreign Offshore Procedures
Incidentally, with a record number of citizenship renunciations reported just a few days ago (more than 1,400 in the latest quarter – Quarterly Publication of Individuals, Who Have Chosen To Expatriate, as Required by Section 6039G, Oct. 27, 2015) this is particularly important to U.S. citizens living all around the world.
One particularly salient quote regarding the streamlined procedure from Mr. Price was, “The IRS is going to presume the taxpayer was non-willful unless facts indicate otherwise.”
One of the important questions that U.S. citizens overseas face is whether their particular facts indicate they would be better off by simply filing initial or amended tax returns. There are also so-called “qualified amended returns” which will be discussed in another post.
Neither the federal tax law nor the Treasury Regulations provide that a taxpayer has an affirmative statutory duty to file an amended income tax return, as long the original return reflects a good faith effort to comply with the law at the time the tax return was originally filed. The Treasury Regulations, which are drafted by the IRS, instruct that a taxpayer “should,” within the period of limitation, amend to correct prior errors in a tax return, but not that a taxpayer “must” amend. See Treas. Reg. § 1.451-1(a). 
When a taxpayer fails to file a tax return by the due date, the taxpayer may be subject to failure to file and failure to pay penalties and interest charges. See IRC Section 6561; IRC Section 6601. The real problem can be that if a taxpayer fails to file a return voluntarily, the IRS may file a substitute return for the taxpayer instead, including on the basis of information received by third parties. See IRC Section 6020. This substitute return may not give the taxpayer credit for deductions and exemptions they are entitled to. Substitute returns prepared by the IRS are valid for calculating a taxpayer’s income tax deficiencies and penalties for failure to file and failure to pay. See Holloway v. Commissioner, T.C. Memo. 2012-137; see also Brewer v. U.S., 764 F. Supp. 309 (S.D.N.Y. 1991).
However, at the end of the day, those U.S. citizens residing overseas who were/are not aware of the U.S. federal tax law filing requirements have not committed a “mortal sin” in the vernacular of the Roman Catholic Church. Indeed, in these circumstances, they have probably only exposed themselves to penalties (late payment, late filing, etc.) which are based upon the amount of tax owing. Of course, the IRS does sometimes use the stick of international information reporting penalties over the head of taxpayers. See, excellent summary by the American Citizens Abroad, Delinquent FBAR and Tax Filing Penalties
The question is: “Streamlined (to be) or not Streamlined, i.e., just file returns (not to be)”?