Update from the OVDP Hotline and Agent Bayer

The question was whether SDOP or SFOP strictly applies only for the past 3 years of troublesome tax returns. By this I mean – only for years 2011-2013 and that under the Program you cannot amend (or file) say, a tax return from 2010 or earlier.
The New Streamlined Program is not available in the situations set out below:
Category A would involve someone such as Mr. XX, a naturalized American living abroad for decades. He timely filed income tax returns but filed them all incorrectly; sadly Mr. XX believed in self-medicating and had done all of his tax returns himself. Part of his problem was that he believed only his overseas salary and US source income was taxable; he omitted significant offshore income. While the general Statute of Limitations (SOL) is 3 years, in Mr. XX’s case the statute could be extended to at least 6 years because Mr. XX had omitted a lot of income from his returns (25% or more).
Category B would involve someone such as Mr. YY  who had not filed tax returns for over 10 years while living and working abroad. He did not want to enter OVDI/P, and he could not fit within the parameters of the old Streamlined Program. He filed going forward and has been fully tax compliant since 2011.  Returns for all older tax years remain unfiled. The SOL remains open indefinitely when tax returns are not filed and Mr. YY fears a knock on the door someday about his past tax transgressions.
Category C Facts same as Category A except Mr. ZZ is a former Indian national who became after receiving his green card a US citizen and is living and working in the US for over 10 years now.

Sadly, the definitive answer from the OVDP Hotline is that neither of these types of cases can use the new Streamlined procedure.
Since the streamlined program is not intended for the kind of taxpayers outlined above, then clearly it is useless for anyone who thinks they can easily come into compliance. On the contrary, it appears to be a trap to get people to come out of the woodwork and then throw the book at them !

The general rule is that the IRS has 3 years after the later of the date the tax return was due or the date the return was filed, in order to assess tax.This rule applies if the tax return is timely filed or if it is filed late.
The statute can be extended to 6 years if there is a “substantial understatement” of income.  This means the taxpayer omitted from gross income an amount properly includible in his income and that amount is more than 25% of the amount of gross income stated in the tax return.
Under a special rule added to the tax law in 2010, the statute can also be extended to 6 years if the taxpayer omits over $5,000 from gross income that is attributable to certain kinds of foreign financial assets. Many Americans living and working overseas are under the mistaken assumption that they do not need to file tax returns if they earn less than the so-called “foreign earned income / housing exclusion” amounts. Tax returns must still be filed in order to claim the benefit of these exclusions.
If there is a failure to file certain foreign-related information returns with one’s income tax return, such as Form 8938 or Form 3520 or Form 5471, the statute of limitations does not begin to run because the return is treated as “incomplete”.  The statute is suspended until the foreign information is provided to the IRS.Under recently enacted tax rules (March 2010), the statute of limitations does not begin to run until the taxpayer has complied with all mandatory foreign reporting. Furthermore, even though the statute starts to run, the entire tax return will remain open for IRS adjustments for a period of 3 years (rather than only for the portions of the return relating to the foreign reporting that had been missing).
 The statute of limitations also does not start to run if a tax return is false or fraudulent or if there is a “willful” attempt to evade taxation.

The so-called FBAR is not a tax return. It takes its genesis not from the US income tax laws, but from the Bank Secrecy Act. The FBAR statute of limitations for civil penalties is 6 years from the date of the violation, which is generally June 30^th of the year following the calendar year to which the FBAR relates (e.g., the FBAR covering the 2014 calendar year is due June 30, 2015 and if not received on such date, constitutes the date of violation). The FBAR statute of limitations for criminal violations is only 5 years. Significantly, unlike tax returns, the FBAR statute continues to run whether or not the FBAR was filed.