Streamlined Domestic Offshore Procedures: SDOP 2023 Guide

Streamlined Domestic Offshore Procedures: SDOP 2023 Guide

Streamlined Domestic Offshore Procedures

The Streamlined Domestic Offshore Procedures (SDOP) are approaching their 10-year anniversary. The stand-alone program was first introduced in mid-2014. Since then, Golding & Golding has successfully represented several thousand taxpayers in over 80 countries with streamlined filing submissions and our team has written hundreds of detailed SDOP articles. Since the introduction of SDOP, the Internal Revenue Service has become much more aggressive on matters involving foreign accounts, assets, investments, and income compliance. Here are five very common issues we come across, to assist you in determining if the Streamlined Domestic Offshore Procedures is the right program for you.

Willfulness vs Non-Willfulness

You must qualify as non-willful to be eligible for the Streamlined Procedures. While there is no bright-line test to determine willfulness from non-willfulness, there are various factors taxpayers can use to assess and evaluate their offshore amnesty options. Taxpayers should be careful before certifying under penalty of perjury that they are non-willful since the IRS does go after willful taxpayers who try to submit to SDOP.

Timely Filed Tax Returns

Unlike the Streamlined Foreign Offshore Procedures (SFOP), with the Streamlined Domestic Offshore Procedures, taxpayers cannot submit original tax returns with their submission. Rather, they are able to only amend prior year returns. If a taxpayer did not file original tax returns (and was required to do so), they generally do not qualify for SDOP.

Domestic and Foreign Income

In order to qualify for the Streamlined Domestic Offshore Procedures, a taxpayer has to be non-willful and missed reporting income on their tax originally filed tax returns. But, if a taxpayer also missed reporting some domestic income – that too can be resolved with SDOP.

Are Any of Your Assets Exempt from Penalty?

Some assets are not penalized under Streamlined Domestic Offshore Procedures. For example, RRSPs and RRIFs from Canada escape the 5% Title 26 Miscellaneous Offshore Penalty. Also, rental real estate held individually (as opposed to being held in an entity) is not penalized either.

The Program May End at Any Time 

The IRS has proclaimed that the Streamlined Domestic Offshore Procedures are just a “band-aid” and that the program may end at any time. Therefore, Taxpayers who are considering submitting to SDOP should be aware of potential timing issues for their submission.

Will the Penalties Increase?

The Streamlined Domestic Offshore Procedures penalty has been 5% for many years and the IRS reserves the right to increase the penalty at any time. Due to current inflation and rising interest rates, a penalty increase would not be surprising.

Current Year vs Prior Year Non-Compliance

Once a taxpayer misses the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

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 of the Streamlined Procedures. 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. 

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.