- 1 Streamlined Domestic Offshore Procedures for U.S. Residents
- 2 Purpose of the IRS Streamlined Program
- 3 Eligibility Criteria for U.S. Residents
- 4 Treatment & Scope of IRS Streamlined Procedures
- 5 IRS Form 14654 Non-Willful Certification
- 6 First Try Streamlined, then go OVDP?
- 7 Golding & Golding: About our International Tax Law Firm
- 8 Interested in Learning More?
Streamlined Domestic Offshore Procedures for U.S. Residents
Streamlined Domestic Offshore Procedures: The IRS developed the domestic streamlined programs 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. Taxpayers can use the Streamlined Domestic Offshore Procedures to get back into compliance for FATCA, FBAR and other international information reporting forms.
The three (3) main requirements necessary to qualify for SDOP are:
- Filed U.S. tax returns timely for three (3) years); and
- Not be under audit
The goal of the program is to proactively bring non-willful taxpayers into offshore compliance. In exchange for making the submission, the IRS 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 become ineligible for submission.
Purpose of the IRS 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.
Eligibility Criteria for U.S. Residents
In order to be eligible for the 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.
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 the program.
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.
Treatment & Scope of IRS Streamlined 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. 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.
B. 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:
|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|
Other Offshore Penalties you can Avoid
By submitting the 5% penalty, you can avoid other penalties, including:
- FBAR Penalties
- 3520 Penalties
- 3520-A Penalties
- Form 5471 Penalties
- Form 5472 Penalties
- Form 8621 Penalties
- Form 8938 Penalties
- Form 8865 Penalties
IRS Form 14654 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.
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.
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.
Golding & Golding: About our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
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 Streamlined 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 Offshore Counsel
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More?
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.