Streamlined Domestic Offshore Procedures
Contents
- 1 Streamlined Domestic Offshore Procedures
- 2 Benefits of the Streamlined Procedures
- 3 Purpose of IRS Streamlined Domestic Offshore Program
- 4 Streamlined Domestic Offshore Eligibility Criteria
- 5 Were You Non-Willful?
- 6 Non-Willful vs. Lower Standards of Willfulness
- 7 Did You Previously File “Timely” Tax Returns?
- 8 Are You Currently Under Audit or Examination
- 9 Are you a Non-Foreign Resident?
- 10 Treatment & Scope of IRS Streamlined Domestic Procedures
- 11 Unpaid Taxes Due in Prior Years
- 12 Title 26 Miscellaneous Offshore Penalty
- 13 Other Offshore Penalties you can Avoid
- 14 IRS Form 14654 Streamlined Domestic Non-Willful Certification
- 15 Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
- 16 Need Help Finding an Experienced Offshore Tax Attorney?
- 17 Golding & Golding: About Our International Tax Law Firm
Streamlined Domestic Offshore Procedures
In 2014, the Internal Revenue Service developed a stand-alone International Tax Amnesty Program for non-willful US Taxpayers who have not timely disclosed offshore assets, investments, accounts, and income. The program is referred to as the Streamlined Domestic Offshore Procedures — or SDOP for short. Each year, US Taxpayers are required to report their overseas money on a variety of different international information reporting forms — such as FBAR and FATCA — in order to comply with US tax and reporting rules — and remain in Foreign Accounts Compliance with the US Government. The Streamlined Domestic Offshore Procedures Program is designed to help noncompliant Taxpayers safely get into compliance. It is important to note that SDOP is reserved for non-willful, noncompliant US Residents only — willful taxpayers are still eligible to submit to the VDP (Voluntary Disclosure Program) instead of the Streamlined Procedures. With the US Government’s aggressive enforcement of foreign accounts and asset compliance — and the recent increase in international audits — it is important to consider SDOP as a proactive means of offshore compliance. Once a Taxpayer is under audit they lose the right to use the Streamlined Domestic Offshore Procedures.
Benefits of the Streamlined Procedures
With the Streamlined Procedures for US Residents, non-willful Taxpayers can get caught up with International Reporting Forms, including (but not limited to):
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FinCEN Form 114 (FBAR)
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Form 8938 (FATCA)
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Form 5471 (Foreign Corporations)
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Form 8621 (PFIC)
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Form 8865 (Foreign Partnerships)
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Form 3520-A Foreign Trusts
The Streamlined Procedures for US Residents has been a very successful program for the US Government — and a safe way for Taxpayers to get into offshore tax compliance for international information form reporting — and avoid offshore penalties. Since the IRS both closed OVDP (2018) and ended DIIRSP (2020), the big question is whether Streamlined may be next up on the chopping block. The Board-Certified Tax and legal team at Golding & Golding have successfully handled streamlined filing submissions (Streamlined Domestic and Streamlined Foreign) for clients located all over the world. We have developed an innovative, all-inclusive flat-fee, full-service tax and legal model which has been adopted by international tax lawyers across the globe.
Purpose of IRS Streamlined Domestic Offshore Program
The purpose of the Streamlined Domestic Program is to leverage a smaller penalty now, against a potentially larger penalty later — noting that in recent years, the IRS has become much more aggressive in enforcing FBAR and offshore penalties. By way of brief background In 2014, the IRS developed the “stand-alone” domestic streamlined offshore program for U.S. resident taxpayers who are delinquent with offshore account and income reporting. Eligibility for the domestic version (SDOP) is for non-foreign residents with previously unreported foreign accounts, assets, income, and investments. These Taxpayers can use the Streamlined Domestic Offshore Procedures to get back into compliance with FATCA, FBAR, and other international information reporting forms.
The three (3) main requirements necessary to qualify for SDOP are:
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non-willful
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filed U.S. tax returns timely for three (3) years); and
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not be under audit
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The goal of the program is to proactively bring non-willful taxpayers into offshore compliance. In exchange for making the submission, the Internal Revenue Service agrees to reduce all the offshore penalties to a single Title 26 miscellaneous offshore penalty of 5%. In recent years, the IRS has significantly increased the number of international tax and FBAR audits. If the Internal Revenue Service initiates an audit before the taxpayer makes a submission, the taxpayer becomes ineligible for submission.
Streamlined Domestic Offshore Eligibility Criteria
In order to be eligible for the domestic version of the procedure, there are four (4) main requirements. Within these elements, there are various requirements, nuances, exclusions, exceptions, and limitations — but these are the four (4) main components.
Were You Non-Willful?
Generally, if a person was unaware that there was a foreign account, foreign income, or foreign asset reporting requirement, the applicant may qualify as non-willful. Unfortunately, there is no bright-line test, and a more complex “totality of the circumstances” analysis is required.
Non-Willful vs. Lower Standards of Willfulness
Willfulness does not mean intent.
There can be “lower” forms of willfulness, which do not require willful or intent — these additional willful standards are referred to as:
Even if a person was only non-willful for a small amount of time, or was willful but only had relatively small amounts of unreported income they do not qualify.
Learn what happens if you are willful and try to enter the program.
Did You Previously File “Timely” Tax Returns?
In order to qualify for the streamlined domestic offshore procedures (SDOP) a person must have filed original tax returns and those returns had to be filed timely. In other words, you cannot file original tax returns as part of the streamlined domestic offshore procedures
*The “timely return” requirement does not apply to the Streamlined Foreign Offshore Procedures.
Are You Currently Under Audit or Examination
As provided by the IRS:
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“If the IRS has initiated a civil examination of taxpayer’s returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the streamlined procedures.
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Taxpayers under examination may consult with their agent. Similarly, a taxpayer under criminal investigation by IRS Criminal Investigation is also ineligible to use the streamlined procedures.”
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Are you a Non-Foreign Resident?
If a person is a foreign resident, then they will qualify for the Streamlined Foreign Offshore Procedures aka SFOP (presuming they are non-willful). When a person qualifies for SFOP, the 5% penalty is waived and the applicant can file original tax returns under the program.
Treatment & Scope of IRS Streamlined Domestic Procedures
A common question we receive about Streamlined Domestic Offshore Procedures (SDOP), is what type of general treatment an applicant will receive from the IRS under this program.
Here is a brief summary:
Unpaid Taxes Due in Prior Years
When a person submits to the streamlined domestic offshore procedures, they are responsible for paying what their tax liability would have been, had they initially paid their taxes timely. Unlike the voluntary disclosure program, there is no penalty on the amount of tax due — although interest continues to accrue.
Title 26 Miscellaneous Offshore Penalty
The penalties are relatively straightforward. The applicant will pay a one-time 5% penalty for the 6-year compliance period (summarized below). Under the Streamlined Domestic version of the program, a person pays a single, 5% penalty in lieu of all the other penalties the applicant could be hit with: The calculation for the penalty can be deceivingly complicated. This is primarily due to the fact that some assets are not penalized — such as individually owned real estate. In addition, other penalties are exempt, such as the value of Canadian RRSP and RRIF. We have prepared a detailed step-by-step summary about how to calculate the SDOP 5% Title 26 Miscellaneous Offshore Penalty.
Other Offshore Penalties you can Avoid
By submitting the 5% penalty, you can avoid other penalties, including:
IRS Form 14654 Streamlined Domestic Non-Willful Certification
In order to qualify for the Streamlined Domestic Program, you must be able to certify (under penalty of perjury) that you were non-willful on Form 14654.
Here are a few pointers:
You Cannot Be Even a Little Willful
If you are willful, you do not qualify for the streamlined program. Even if you are willful but sorry and regretful, in the eyes of the IRS — you are still willful. You are signing the form under penalty of perjury. Your only option for formalized offshore disclosure is the traditional VDP.
Do Not Write a Novel
While the certification statement asks for significant facts to substantiate your non-willfulness, the goal is to be accurate and succinct. Even though each person’s facts and circumstances are different, most submissions do not require a 10-page summary.
Be Clear and Concise
The IRS agents are overworked and underpaid. If you could find a way to say the same sentence using seven (7) words instead of 15 words, then you should do it. You should do your best to write and rewrite the statement as many times as necessary to get it as succinct (and concise) as possible — while still including all of the necessary information.
Be Respectful
The IRS agents are only doing their job; it is not as if the agents have it out for you. Whether you want to believe that or not, we’ve been doing this for many years, and we can tell you most agents are not gunning to become the head IRS person in charge. They have a job, and they have certain protocols for accepting or rejecting a submission. There is no need to be rude to the agents; be respectful and you will find that being respectful will go a long way in your streamlined submission (and in life).
Review the IRS Form Instructions Before Submitting
The IRS periodically updates the program requirements and updates the version of the forms. It is important that you have met all the necessary requirements, both substantively and administratively — so that your submission does not get kick-backed unnecessarily.
Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties.
Need Help Finding an Experienced Offshore Tax Attorney?
When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.
Contact our firm today for assistance.
