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Streamlined Domestic Offshore Procedures (SDOP)

The Streamlined Domestic Offshore Procedures are an IRS amnesty program. It helps taxpayers file for prior year FBAR, FATCA and other required forms. The domestic version of the program is for U.S. residents, but still refers to foreign accounts, assets and income. In recent years, the Internal Revenue Service has taken an aggressive approach to unreported offshore accounts, assets, investments, and income. Recently, the IRS has also stated that they intend on ending the program sooner as opposed to later. The IRS Streamlined Procedures are part of the larger voluntary disclosure initiative.

Streamlined Domestic Offshore Procedures

The Streamlined Domestic Offshore Procedures have been active for 5-years, and are much more complicated than some inexperienced tax practitioners want you to believe.

Don't be misled.

U.S. taxpayers residing in the United States (or those who do not meet the foreign resident requirement) are eligible to submit to the streamlined domestic offshore procedures. Common questions we receive about the Streamlined Domestic Procedures, include:

Eligibility
How to Qualify
How to Apply
Treatment in the Program
Penalties
Audits
Eligibility for Streamlined Domestic Offshore Procedures

In order to be eligible for the streamlined domestic offshore procedures, a person must meet the specific requirements of the program. In addition to the general requirements of the streamlined procedure, there are specific requirements for the streamlined domestic program.

Streamlined Domestic Offshore Procedures Non-Residency Requirement

The first requirement is that the taxpayer is a U.S. Resident. Or, if using the IRS phraseology, the taxpayer did not meet the non-residency requirement.

Previously Filed U.S. Tax Returns, if Required

The IRS will not accept the filing of original tax returns in the streamlined domestic program. Therefore, in order to qualify for the domestic streamline procedures, the applicant must have filed original tax returns.

This presumes the Taxpayer filed the original tax returns, timely.

*We have spoken with IRS agents on multiple occasions regarding this issue. While the IRS agents would not provide confirmation in writing, they did acknowledge there is a spectrum involving, timeliness. If the returns were filed a few weeks late, a person may still qualify. Anything longer than that, and chances are the application will be rejected.

*If a tax return was not required, that will not render a person ineligible for domestic streamlined.

Failed to Pay U.S. Tax on Foreign Income and File FBAR

In order to qualify for the streamlined procedures, a person must have unreported “foreign” income. If a person only has unreported domestic income, they do not qualify for IRS streamlined.

Likewise, if a Taxpayer only has unreported accounts or assets, and no unreported income, he or she may qualify for a different program — Delinquent International Information Return Submission Procedures – and avoid all penalties.

Non-Willful Conduct for Streamlined Domestic Offshore Procedures

Non-willful conduct is a general requirement for all streamlined programs. The IRS reiterates that unless a person is not willful they would not qualify for the program.

How to Submit to Streamlined Domestic Offshore Procedures

The instructions concerning the streamline domestic offshore procedures as provided by the IRS are very dense.

We want to break it down for you into bite-sized pieces:

3-Years of Amended Tax Returns

In order to qualify for the program, a person must submit three (3) properly amended tax returns. Even with this relative my straightforward requirement, there is a bit of a nuance for current year filers

For example, let’s say someone already filed their 2019 tax return, in April 2020.

-In late 2020 (2019 tax returns are filed in 2020), the person realizes they did not comply with foreign requirements.

-The 2020 tax return (which is not available until 2021) cannot be filed yet, and so the taxpayer amends tax years 2017, 2018 and 2019.

-If instead, let’s say the taxpayer does not find out that they are out of compliance until early 2021.

-The 2020 tax return is now coming due soon. Therefore, the person may be able to submit and original 2020 tax return, along with an amended 2018 in 2019 return.

*There are various complexities involving willfulness and timing, and you may consider speaking to a streamlined disclosure lawyer specialist before making any representation when determining your strategy.

International Information Returns

In addition to filing tax returns. a person may also have to file international information returns for the three-year compliance-period.

Some of the more common International information returns include:

3520
3520-A
5471
8621
8865
6-Years of FBAR Filing