Are Streamlined Foreign Offshore Procedures Right for You?

Are Streamlined Foreign Offshore Procedures Right for You?

Are Streamlined Foreign Offshore Procedures Right for You?

Out of all the different IRS offshore tax amnesty programs for undisclosed foreign accounts, assets, investments, and income, the Streamlined Foreign Offshore Procedures (SFOP) is probably the best international tax program available to Taxpayers who qualify. The program is designed to assist Taxpayers who do not qualify as US residents to safely get into offshore compliance for undisclosed foreign money. Just like its domestic counterpart (Streamlined Domestic Offshore Procedures or SDOP), in order to qualify for the SFOP, the Taxpayer must be non-willful. But, unlike the domestic version of the program, Taxpayers will avoid any Title 26 Miscellaneous Offshore Penalty for not timely reporting foreign accounts and assets. In addition, Taxpayers can file original tax returns in the foreign version of the streamlined program. Here are five important facts about the Streamlined Foreign Offshore Procedures.

Must Be a Foreign Resident

In order to qualify for the Streamlined Foreign Offshore Procedures, the Taxpayer must qualify as a foreign resident. There are very specific requirements to determine whether or not a person qualifies as a foreign resident — and these requirements are different than they are under the 330-day Physical Presence Test under the Foreign Earned Income Exclusion, as well as the general concept of being a non-US resident. For example, just residing overseas for a few months out of the year in a home country will typically not qualify someone as being a foreign resident sufficient to meet the definition for SFOP.

US Citizen/Permanent Resident vs Substantial Presence

Qualifying as a foreign resident is different for a US Citizen (USC) or Lawful Permanent Resident (LPR) than for someone who is only a US person because they met the substantial presence test. In order to qualify as a foreign resident when the applicant is either a USC or LPR, the Taxpayer must reside outside of the United States for at least 330 days in any one of the past three (3) tax years — and some additional restrictions apply. Conversely, in order for someone who is a US person under the Substantial Presence Test to qualify as a foreign resident, they generally only have to show that they did not meet substantial presence in one of the past three tax years. 

Applicant Must be Non-Willful

The most important aspect of qualifying for any of the Streamlined Programs is that the Taxpayer is non-willful. There is no bright-line test to determine whether or not a person is non-willful; instead, Taxpayers will have to assess their specific facts and circumstances to determine whether or not they believe they can satisfy non-willful requirements and sign the certification form (14653) under penalty of perjury.

SFOP Allows Filing of Original Tax Returns

One important benefit to the Streamlined Foreign Offshore Procedures (as opposed to the Streamline Domestic Offshore Procedures), is that a Taxpayer can file original tax returns in the Streamlined Foreign version of the program. This is a welcome benefit for Taxpayers who reside overseas and they have not filed tax returns for several years (or ever) – such as Accidental Americans.

As provided in the (current 1/2022 version of) the instructions:

      • 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 Foreign 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, file delinquent or amended tax returns, together with all required information returns (e.g., Forms 3520, 5471, and 8938) and (2) for each of the most recent 6 years for which the FBAR due date has passed, file any delinquent FBARs (FinCEN Form 114, previously Form TD F 90-22.1).  The full amount of the tax and interest due in connection with these filings must be remitted with the delinquent or amended returns.

No Closing Letter or Acknowledgement

When a Taxpayer enters the IRS Voluntary Disclosure Program and completes the program — the Taxpayer receives a closing letter (906 Letter). When a Taxpayer submits to the Streamlined Domestic Offshore Procedures and completes the program, they receive an acknowledgment – – which is not the same as a closing letter but it gives Taxpayers the warm and fuzzies that they received IRS confirmation and that they completed the procedure. With the Streamlined Foreign Offshore Procedures, there is no penalty and therefore there is no acknowledgment letter directly in regard to submitting the Form 14653, which can be difficult for some taxpayers to digest. This is why Taxpayers can benefit from a full-service, flat-fee tax and legal representation model.

*Some Taxpayers will receive general notices from the IRS that their original or amended tax returns have been processed, but this does not come directly as a result of the Streamline Procedures submission.

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