- 1 Do You Qualify for Streamlined Domestic Offshore Procedures?
- 2 Do You Qualify as a Foreign Resident?
- 3 Non-Willful is a Streamlined Domestic Offshore Requirement
- 4 Not Currently Under Audit
- 5 Filed Original Tax Returns to be Eligible for SDOP
- 6 Collateral Damage for Joint Accounts for Streamlined Domestic Submissions
- 7 Golding & Golding: About our International Tax Law Firm
Do You Qualify for Streamlined Domestic Offshore Procedures?
When a US Person has not timely filed prior year international information reporting forms in order to disclose their overseas assets, accounts, investments, and income to the Internal Revenue Service and FinCEN, they may become subject to (potentially substantial) fines and penalties. It is a completely unfair system (especially for recent transplants to the US), because oftentimes when a foreign person comes to the United States, they already have accounts that pre-date their US person status — and neither the IRS nor any qualified US tax practitioner properly informed them about the reporting requirements of foreign assets for non-residents who become US persons. In order to safely get into compliance, sometimes Taxpayers may consider submitting to the Streamlined Domestic Offshore Procedures for US residents – – which is an IRS offshore tax amnesty program designed for non-willful US persons with undisclosed foreign money. Unfortunately, sometimes a Taxpayer submits to the Streamline Domestic Offshore Procedures when it was not the proper program for them to pursue. Let’s go through five important questions in determining whether or not the Streamlined Domestic Offshore Procedures for US residents may the right program for you.
Do You Qualify as a Foreign Resident?
The first consideration is whether or not the Taxpayer actually qualifies for the Streamlined Domestic Offshore Procedures (which is designed for US residents and carries a 5% miscellaneous offshore penalty) or whether the Taxpayer can qualify as a foreign resident for purposes of the Streamlined Foreign Offshore Procedures. The program is similar to the domestic version of the program, except there is no offshore penalty and the Taxpayer is able to file original tax returns as part of the program.
Non-Willful is a Streamlined Domestic Offshore Requirement
The most important aspect for submitting to the Streamlined Program is that the Taxpayer qualifies as non-willful. Unfortunately, there is no bright-line test to determine whether or not a Taxpayer qualifies as non-willful. Instead, it boils down to a “totality-the-circumstance” analysis. Complicating the analysis further is that the IRS can dispute non-willfulness. In order for the US Government to show the Taxpayer was willful instead of non-willful and therefore subject to much deeper penalties, they are only required to show that the Taxpayer acted with reckless disregard or willful blindness – and not even actual “intent!”
Not Currently Under Audit
If a Taxpayer is already under audit/examination by the Internal Revenue Service, they are ineligible for the program. The rationale behind this requirement is that if a Taxpayer is already under audit –– even if it is not for overseas accounts and assets compliance –– they are required to disclose this information to the agent/examiner during the audit.
Filed Original Tax Returns to be Eligible for SDOP
Under the Streamlined Domestic Offshore Procedures, Taxpayers are able to amend their already filed returns in order to include any missed foreign income — along with any missed domestic income. For this version of the program, unlike the Streamlined Foreign Offshore Procedures, the Taxpayer cannot file original returns as part of the program. If the Taxpayer did not file timely original tax returns, then they would not qualify for Streamlined Domestic.
As provided by the IRS: “U.S. taxpayers (U.S. citizens, lawful permanent residents, and those meeting the substantial presence test of IRC section 7701(b)(3)) eligible to use the Streamlined Domestic Offshore Procedures must (1) for each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed (the “covered tax return period”), file amended tax returns, together with all required information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621)” (emphasis added).
Collateral Damage for Joint Accounts for Streamlined Domestic Submissions
One important consideration when making a Streamlined Procedure, is whether or not a Taxpayer is jointly named on a foreign account with another US person who may also be subject to potential reporting and penalties for noncompliance — but is not making a submission. Taxpayers who are in this situation should carefully evaluate all the facts and circumstances in order to determine the best strategy for submission –– and may want to consult with an experienced Board-Certified Tax Law Specialist before making any proactive representation to the IRS.
Golding & Golding: About our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm today for assistance.