- 1 Streamlined Domestic Offshore Procedures
- 2 Purpose of the Streamlined Program
- 3 General Treatment under Streamlined Domestic Offshore Procedures
- 4 Common Situations which Increase Audit Risk
- 5 Eligibility Criteria for the Streamlined Domestic Offshore
- 6 5% Streamlined Domestic Offshore Penalty Calculation
- 7 IRS Non-Willful Certification Form 14654
- 8 First Try Streamlined, then go OVDP?
- 9 Streamlined Domestic Offshore Procedures Ending in 2019?
- 10 Don’t Let Yourself Be Misled about the Nature of the Streamlined Program
- 11 Streamlined Offshore Disclosure Lawyers (Board-Certified Tax Specialist)
- 12 Recent Golding & Golding Case Highlights
- 13 How to Hire Experienced Streamlined Counsel?
- 14 Interested in the Streamlined Domestic Offshore Procedures?
Streamlined Domestic Offshore Procedures 2019 – Do I Qualify?
Streamlined Domestic Offshore Procedures: The IRS Streamlined Domestic Offshore Procedures (SDOP) is an offshore compliance program for unreported foreign income.
The program developed by the IRS to bring non-willful taxpayers into offshore compliance for unreported offshore accounts, assets, investments or income.
Streamlined Domestic Offshore Procedures
These procedures can be used by expats and U.S. persons (U.S. or foreign tax home) with issues involving:
- Offshore Accounts & Assets
- Offshore Income
- Unused Foreign Tax Credits
- Foreign Earned Income Exclusion
- Foreign Housing Exclusion
- Offshore Trusts
- International Reporting Forms
The IRS Streamlined Domestic Offshore Program is designed for U.S. residents (aka non-foreign Residents) with unreported foreign and offshore money, but who were non-willful — and filed original tax returns timely.
There are no concerns about badges of fraud, evasion
SDOP is also referred to as:
- IRS Streamlined Domestic
- Streamlined Filing Compliance Procedures
- Streamlined Procedures
- Streamlined Disclosure
- IRS Streamlined Amnesty Program
Purpose of the Streamlined 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 proactively submitting a Streamlined Domestic submission, you voluntarily pay a “5% Streamlined Penalty” up-front, to avoid a potentially much larger penalty in the future.
While not everybody gets hit with offshore penalties, the IRS has increased enforcement.
General Treatment under Streamlined Domestic Offshore 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:
A. Streamline Domestic Offshore Tax Liability
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.
B. Streamline Domestic Offshore Penalties
The penalties are relatively straightforward. The applicant will pay a one-time 5% penalty for the 6-year compliance period (summarized below).
C. Streamlined Domestic Offshore Audit or Examination
The IRS has made it known they are increasing enforcement of post-submission procedures. Over the past 6-months, we have had many individuals approach us after receiving a notice of audit.
Common Situations which Increase Audit Risk
– The client did not retain a dually-licensed Attoney/EA or Attorney/CPA.
– The initial attorney referred the client out to a CPA, who then tried to gauge the client with fees.
– The outside CPA did a sloppy job on the submission.
– The less-experienced attorney who prepared the submission missed several key tax and legal issues — as did the outside CPA.
IRS Offshore Penalties SDOP can Help You Avoid
Here is a brief list of the potential penalties you can get hit with by the IRS:
- FBAR Penalties
- 3520 Penalties
- 3520-A Penalties
- Form 5471 Penalties
- Form 5472 Penalties
- Form 8621 Penalties
- Form 8938 Penalties
- Form 8865 Penalties
Eligibility Criteria for the Streamlined Domestic Offshore
In order to be eligible for the streamlined domestic offshore procedures 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.
A. 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 standard 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 Streamlined Domestic Offshore Procedures.
B. 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 streamline domestic offshore procedures
*The “timely return” requirement does not apply to the Streamlined Foreign Offshore Procedures.
C. Are You Currently Under Audit or Examination
As provided by the IRS:
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.
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.
D. 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.
5% Streamlined Domestic Offshore Penalty Calculation
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:
|Form 14654 Penalty Example||How to Calculate||Practice Pointer|
|Step 1: Evaluate your Accounts & Assets||There are many different accounts and assets that may be included in the computation. Two of the most common are assets and accounts involving FATCA (Foreign Account Tax Compliance Act) and FBAR (Report of Foreign Bank and Financial Account Form) *Some assets and accounts may be excluded from the penalty-base.||Be sure your foreign assets and accounts are not excluded from the penalty base|
|Step 2: Compile 12/31 Year-End Balances||Compile the 12/31 balances on your Foreign Accounts, Insurance Policies and other 8938/FBAR qualified accounts for each year within the compliance period.||The use of the December 31st helps avoid double-counting|
|Step 3: Select an annual exchange rate||Determine the proper exchange rate for each year. There are various exchange rates you can use, such as the IRS exchange rates and Department of Treasury exchange rates.||Practice Pointer: Stay consistent with the source of exchange rates you used.|
|Step 4: Aggregate the 12/31 balances||Total the 12/31 balances on your previously unreported Foreign Accounts, Insurance Policies and other 8938/FBAR qualified accounts (Value of Real Estate is not included for the Streamlined Program).||Be sure to only include accounts and assets that comprise the penalty base.|
|Step 5: Select the highest 12/31 aggregate balance||Pick the one-year that has the highest 12/31 balance (not highest max year balance, which is the standard for Traditional Voluntary Disclosure).||The 5% Penalty is not on every year -- just the highest year.|
|Step 6: Multiply the aggregate balance by 5%||Example: Michael's highest year 12/31 aggregate balance in the six (6) year compliance period is 2017. In 2017 his 12/31 balances totaled $2,600,000. His penalty would be $130,000.||Multiple by .05 -- not .50|
IRS Non-Willful Certification Form 14654
In order to qualify for the Streamlined Domestic Program, you must be able to certify (under penalty of perjury) that you were non-willful.
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.
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 cocise) as possible — while still including all of the necessary information.
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.
First Try Streamlined, then go OVDP?
No, but you’re thinking smart — and that’s always a good thing.
Why can’t you try Streamlined first?
Because if the IRS would let you dip your toe in the Streamlined Pool first, before taking the plunge into OVDP, then everyone would do it — even if the applicant was clearly willful.
As provided by the IRS:
Once a taxpayer makes a submission under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures, the taxpayer may not participate in OVDP.
Similarly, a taxpayer who submits to an OVDP voluntary disclosure letter pursuant to OVDP FAQ 24 on or after July 1, 2014, is not eligible to participate in the streamlined procedures.
Streamlined Domestic Offshore Procedures Ending in 2019?
There is no knowing if the Streamlined Domestic Offshore Procedures Ending date is coming now, or later. BUT, the IRS reserves the right to end the program at any time and has indicated that the program “won’t last forever.”
Don’t Let Yourself Be Misled about the Nature of the Streamlined Program
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.
Stay aware of attorneys trying to mislead you about the streamlined program.
Streamlined Offshore Disclosure Lawyers (Board-Certified Tax Specialist)
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants and Financial Professionals worldwide.
- Learn more about the Board-Certified Tax Lawyer Specialist credential
- Learn more about the IRS Enrolled Agent credential
- Learn More about Golding & Golding’s Case Accomplishments
- Learn More about Golding & Golding Testimonials from prior clients
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Streamlined Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
Interested in the Streamlined Domestic Offshore Procedures?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in Streamlined Domestic Offshore Procedures. Contact our firm today for assistance with getting compliant.
Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.
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