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About IRS Streamlined Domestic Offshore Procedures
Streamlined Domestic Offshore Procedures (SDOP) are an amnesty program offered by the IRS. Although “domestic” is in the name, this program relates to offshore income or financial interests.
U.S. residents who did not file the FBAR (Foreign Bank Account Reporting, or FinCEN Form 114) when required can use the SDOP to submit these delinquent forms and avoid FBAR non-filing penalties. However, there are strict requirements for SDOP eligibility.
At Gordon Law Group, our attorneys have guided countless clients through IRS Streamlined Domestic Offshore Procedures. Read on to see who qualifies and how to submit a successful application!
Who is Eligible for Streamlined Domestic Offshore Procedures?
The first step of using the SDOP is finding out whether you qualify. The requirements are complex (especially in IRS language), but we’ve broken them down below. If you’re still not sure, contact our offshore tax attorneys for a consultation.
Unreported Foreign Income
The Streamlined Domestic Offshore Procedures are only for taxpayers with unreported offshore income, such as income from bank accounts overseas. Solely having unreported U.S. income does not qualify a taxpayer for streamlined filing.
There are several international-related forms that taxpayers may be required to file. Some, like FATCA (Form 8938) must be filed with an annual tax return; others, like FBAR (FinCEN Form 114) must be filed in addition to an annual tax return. There are many others, each with their own specific filing requirements.
The SDOP may be used when these forms weren’t filed at all, or when they were filed but did not include all the required information.
To qualify for Streamlined Domestic Offshore Procedures, a taxpayer must be a U.S. Resident. In other words, the taxpayer does not meet the requirements of the more favorable Streamlined Foreign Offshore Procedures, which are offered to expats and non-residents.
Timely Tax Return Filing
The taxpayer must have timely filed all tax returns for the past 3 years, if required. (Not everyone is required to file an income tax return.)
Non-willfulness is a key requirement of any streamlined filing application. To use the SDOP, you must have been non-willful in your failure to file the required forms—meaning that the failure to file was not due to intentional disregard or recklessness.
Many of our clients were completely unaware of their FBAR or FATCA filing requirement for years (even though they used professional tax preparers), and once they learned about these forms, they sought an FBAR lawyer right away to fix the situation. This is an example of non-willful behavior.
If there was willfulness involved, then streamlined filing isn’t an option, but the Voluntary Disclosure Program is a possible alternative.
Taxpayers could face criminal tax charges for using Streamlined Domestic Offshore Procedures when they were, in fact, willful in their non-filing or underreporting.
The tax lawyers at Gordon Law Group can help taxpayers understand what the IRS is looking for when determining whether conduct was willful or non-willful.
How to apply for Streamlined Domestic Offshore Procedures
To apply for Streamlined Domestic Offshore Procedures, the taxpayer must submit a complete application to the IRS that contains each of the following pieces.
Amended Tax Returns for 3 Years
The taxpayer must send 3 amended tax returns that include the previously unreported income, along with any international-related forms that should have been included with the original tax returns.
Information Returns for 3 Years
Earlier, we mentioned that some international-related forms must be filed with a tax return, and some must be filed separately. Any of these separate information returns must also be included with the SDOP application if the taxpayer meets the filing requirements.
Some examples include Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, or Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.
FBAR (Foreign Bank Account Reporting) for 6 Years
The FBAR, or FinCEN Form 114, reports certain foreign accounts and assets held by U.S. taxpayers. If those assets totaled $10,000 or more at any time in the year, then an FBAR must be filed for that tax year. The Streamlined Domestic Offshore Procedures application includes 6 years of FBARs.
Clients often run into problems trying to track down 6 years’ worth of records from their offshore banks and other accounts. Our attorneys can help you in this process.
Calculate the Miscellaneous Offshore Penalty
To use the Streamlined Domestic Offshore Procedures, a taxpayer must pay a single 5% penalty called the Title 26 Miscellaneous Offshore Penalty.
Without the domestic streamlined program, many more penalties could apply. The standard FBAR penalty is up to $10,000 per year for non-willful offenses. Other information returns each carry their own non-filing penalties which can be well in excess of $10,000 per year. When an SDOP application is successful, all of these penalties are replaced by the 5% Miscellaneous Offshore Penalty.
Calculating the 5% penalty can be complicated. It’s based on the highest year-end value of all the foreign financial assets and accounts which should have been disclosed on an FBAR (or other foreign information return) but which were not. Examples of such assets include:
- Bank accounts
- Brokerage or investment accounts
- Retirement accounts
- Life insurance policies
- and more
However, some types of foreign assets aren’t included in the penalty calculation. It’s important to get the number right—otherwise, the SDOP application may be rejected or you may end up paying too high of a penalty
In addition to the penalty, you must also pay any overdue tax and interest resulting from the foreign income included on the amended tax returns.
Complete Form 14654, Certification by U.S. Person Residing in the U.S.
Form 14654, Certification by U.S. Person Residing in the U.S., certifies that:
- A taxpayer qualifies for the Streamlined Domestic Offshore Procedures
- All required FBAR forms have now been filed
- The taxpayer was non-willful
- The calculation of the Title 26 Miscellaneous Offshore Penalty is accurate
This form also includes a narrative explaining the taxpayer’s situation and why the required forms were not submitted previously. Our attorneys have processed hundreds of streamlined applications and can help prepare this important piece.
If Form 14564 is missing or incomplete, the delinquent FBARs and tax returns will be processed without the lenient terms offered by SDOP.
Attorney Fees for Streamlined Domestic Offshore Procedures
It is possible to apply for Streamlined Domestic Offshore Procedures on your own; however, you can save yourself a lot of time, uncertainty, and worry by hiring a professional. There are strict requirements and complex calculations involved, and any mistakes could cause the IRS to reject your application.
If you do decide to use professional help, it’s important to remember that not all tax professionals are experienced with offshore taxes, FBARs, or streamlined filing.
The tax attorneys at Gordon Law Group have years of experience in this area and have completed hundreds of successful streamlined applications. We charge a flat fee for Streamlined Domestic Offshore Procedures that includes preparation of all of the required amended tax returns and informational returns.
We will never try to sell you a service you don’t need or convince you to apply for a program that you don’t qualify for. We’ll lay out the facts, walk through your options, and guide you through the process start to finish.
SDOP Process with Gordon Law Group
- First, contact us online or call (847) 580-1279 to schedule a confidential consultation.
- You’ll have a 30-minute consultation with a highly experienced tax attorney. During this time, we’ll learn whether you qualify for SDOP (or other options) and recommend your next steps.
- Once you hire Gordon Law Group, we’ll complete the entire process for you. We’ll even provide guidance to help you track down records from your overseas accounts!
- The IRS can move slowly, but we’ll keep you up to date the entire time until your application is processed (and, hopefully, accepted).
When to Apply for Streamlined Domestic Offshore Procedures
We understand that you may need time to weigh your options. However, when it comes to tax problems, it’s always best to act sooner rather than later.
There’s no telling how long the IRS Streamlined Domestic Offshore Procedures will be available. In fact, the IRS recently shut down another amnesty option—the Delinquent International Information Return Submission Procedures—without warning.
To learn whether you qualify for SDOP, call (847) 580-1279 or contact us online today!