Common Mistakes in Streamlined Domestic Offshore Submissions (Golding & Golding, Board-Certified in Tax)

Common Mistakes in Streamlined Domestic Offshore Submissions (Golding & Golding, Board-Certified in Tax)

5 Common Mistakes in Streamlined Domestic Offshore Submissions

The IRS Streamlined Domestic Offshore Procedures (SDOP) are a very complex type of IRS offshore submission. By submitting to the Streamlined Domestic Offshore Procedures, you are making proactive representations to the IRS, under penalty of perjury.

It is not something to be taken lightly.

IRS Streamlined Domestic Offshore Submissions

While some lesser-experienced tax firms handle SDOP as part of their general tax practice, oftentimes they miss important nuances that are required for reporting accurately.

The problem is that many of these tax issues are very complex, and hiding in plain sight. 

If the firm does not specialize in this area of law, they will miss the issues.

(SDOP) Streamlined Domestic Offshore Lawyers – Golding & Golding, Board-Certified Tax Law Specialist Team

Golding & Golding represents clients worldwide in over 70-countries exclusively in Streamlined, Offshore and IRS Voluntary Disclosure matters. We have successfully completed more than 1,000 streamlined and voluntary disclosure submissions.

Common Mistakes in Streamlined Domestic Offshore Submissions (SDOP)

Here are 5 common issues to consider:

Foreign Pension is not Identical to a 401K

In the U.S., employer/employee contributions may escape taxation at the time of contribution — and they are taxed at a future date at the time of withdrawal. But, the IRS does not treat foreign pensions the same as U.S.

For example, in Singapore, a CPF is mandated and compulsory — but the IRS taxes both the contributions and growth within the fund.

Some Attorneys and CPAs are all too quick to just deem foreign retirement as ‘401K equivalent,’ and not report the income and/or account information with the streamlined domestic submission.

Understanding PFIC Reporting Exceptions

Not all PFIC situations are complex. While a foreign mutual fund with excess distributions can be an infinitely complicated analysis (especially when a single fund has dividends, capital gains, switch-outs and redemptions) — not all PFIC have excess distribution calculations. Moreover, if there are no excess distributions and the value is less than a certain value — the PFIC may even escape reporting.

PFIC Reporting Non-Exceptions

Some practitioners are all too quick to avoid reporting a PFIC because the value is below the threshold for reporting. BUT, even if the value is below reporting thresholds, if there was an excess distribution, then reporting is still required — even when the value of the PFIC is below reporting thresholds.

Disregarding a Per Se Corporation

You may believe that by disregarding the foreign entity, you can escape 5471 and/or 8865 reporting. While this may be true in some instances, the IRS publishes a list of per se corporations.

And, one of the most common types of foreign corporations (the Sociedad Anonima) is listed.

What does this mean?

It means you cannot disregard these specific types of entities.

Incorrectly Filing a Dormant 5471

Just because your foreign corporation is “inactive,” does not mean it will qualify as dormant under the IRS rules for dormant corporations in accordance with Form 5471 and Rev. Proc. 92-70.

And, with the IRS issuing more 5471 penalties than ever before in years past, it is important to not just assume an inactive or sleeping foreign corporation qualifies as dormant.

Golding & Golding (Board Ceritfied Specialist in Tax Law)

Golding & Golding (Board Certified Specialist in Tax Law)

Interested in the Streamlined Domestic Offshore Procedures?

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Golding & Golding specializes in Streamlined Domestic Offshore Procedures. Contact our firm today for assistance with getting compliant.