Streamlined Domestic Offshore Procedure

Are You Eligible for the Streamlined Domestic Offshore Procedure?

The IRS Streamlined Domestic Offshore Procedure (SDOP) offers US taxpayers with the option to voluntarily disclose unreported offshore income and assets, and potentially avoid significant penalties.

The IRS SDOP allows non-willful taxpayers to proactively become compliant with offshore account reporting and the associated income tax obligations. With aggressive audits of unreported offshore bank accounts and income by the IRS, taxpayers should consider utilizing this voluntary form of remediation. Keep reading to learn more about SDOP procedures and learn how working with a tax attorney can provide a major benefit in these scenarios.

SDOP Requirements for Compliance

U.S. citizens, legal U.S. residents, and their estates must meet the following eligibility requirements for the IRS SDOP:

• Must have filed tax returns for each of the most recent 3 years for which the U.S. tax return due date (or properly extended due date) has passed.
• Fail to meet the applicable non-residency requirement for the Streamlined Foreign Offshore Procedures (see SFOP special rules for joint filers)
• Failed to report gross income from a foreign financial asset
• Failed to file certain international information returns (e.g. FBAR, Forms 3520, 3520-A, 5471, 7837, 926, and 8621).
• The compliance failures resulted from non-willful conduct.
• Must not be under audit or investigation by the IRS.

SDOP Program Scope

An eligible candidate for the IRS SDOP will:

• File amended tax returns (Form 1040), and other information returns such as Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621) under the specified procedures for the last three tax years.
• File any delinquent FBAR (FinCEN Form 114), for the last six tax years.
• Pay the Title 26 Miscellaneous Offshore Penalty, equal to 5 percent of the aggregate balance of the taxpayer’s foreign assets subject to the penalty base.

Frequently Asked Questions About SDOP

Do I qualify for the SDOP?

Taxpayers that meet the eligibility criteria and comply with the Service’s Streamlined Domestic Offshore Procedures will not be subject to failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties, or FBAR penalties, but will instead pay a fixed penalty in lieu of the statutory applicable penalties

Will I be considered a Resident?

If a taxpayer is not a U.S. resident, they may qualify instead for the Streamlined Foreign Offshore Procedures. If you have been outside of the United States for more than 330 full days during the last three tax years, you may be considered a non-resident.

Were my actions Non-Willful?

Non-willful conduct is conduct that is the result of a good faith misunderstanding of the law. It also encompasses conduct that is due to negligence or mistake. Willful blindness or reckless conduct may disqualify a taxpayer from relief. The willfulness determination should be carefully considered.

I don’t qualify for SDOP. Do I qualify for Offshore Voluntary Disclosure or Other Similar Programs?

The Offshore Voluntary Disclosure program was discontinued by the IRS in September of 2018. Our team of experienced tax professionals can guide you through current programs for taxpayers with undisclosed foreign financial assets, such as the Voluntary Disclosure Practice.

Get Advice from Our International Tax Attorneys on Streamlined Domestic Offshore Procedure

Contact our international tax attorneys for a consultation by clicking here to schedule a meeting or by calling us at (410) 431-2558 to get started today.