For eligible U.S. taxpayers residing outside the United States, all penalties will be waived under the streamlined procedures. For eligible U.S. taxpayers residing in the United States, the only penalty under the streamlined procedures will be a miscellaneous offshore penalty equal to 5 percent of the foreign financial assets that gave rise to the tax compliance issue (all income tax related penalties associated with the non-U.S. source income will be waived).

Feel Lucky? The streamlined procedures do not limit the civil penalties otherwise associated with the reporting of U.S. source income. IRS Offshore Voluntary Disclosure Program (OVDP) Frequently Asked Question 7.1 provides “The offshore penalty structure only resolves liabilities and penalties related to offshore noncompliance. Domestic portions of a voluntary disclosure are subject to examination.”

Further, the streamlined procedures do not provide protection from a possible criminal prosecution referral. However, the IRS Voluntary Disclosure Practice set forth in IRS Internal Revenue Manual (IRM) 9.5.11.9 would seem to provide a pass from a criminal referral if the appropriate “bells and whistles” set forth in IRM 9.5.11.9 are followed (a “truthful, timely, complete” disclosure, “ willingness to cooperate”, “taxpayer makes good faith arrangements with the IRS to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable,” etc. ).