Offshore Voluntary Disclosure Program

Coronavirus & Chinese Offshore Voluntary Disclosures | SDOP Tax Law Firm

The ongoing coronavirus pandemic has disrupted many areas of human activity around the planet. The coronavirus even affected the IRS offshore voluntary disclosures concerning US taxpayers’ unreported financial assets and income in China (“Chinese Offshore Voluntary Disclosures”). In fact, the impact of coronavirus on the Chinese Offshore Voluntary Disclosures has been severe and extremely disruptive. Let’s look at the top three ways in which coronavirus has disrupted the Chinese Offshore Voluntary Disclosures.

Coronavirus & Chinese Offshore Voluntary Disclosures: Access to Information

The first and most important disruption caused by coronavirus is reduced access to information necessary to complete offshore voluntary disclosures. As a result of the quarantine measures, many financial institutions in China are either closed or work only limited hours. Hence, it has become much harder to obtain relevant information from the Chinese financial institutions, particularly with respect to certain complex investment products and investment insurance policies.

Moreover, as a result of the suspension of travel between China and the United States, many taxpayers are unable to travel to China to obtain the necessary documents. In many cases, internet access to financial data in China is limited to only a few years, whereas taxpayers often need to go back at least six years to obtain the necessary information to accurately complete their delinquent FBARs. In most instances, a taxpayer needs to personally visit his financial institution to collect this older data. At this point, this is almost impossible.

Coronavirus & Chinese Offshore Voluntary Disclosures: Mailing of Signed Documents

With respect to US taxpayers who are currently in China, many of them have limited ability to execute the documents necessary to complete offshore voluntary disclosures and mail them to their international tax attorneys in the United States.

Coronavirus & Chinese Offshore Voluntary Disclosures: Case Schedule

As a result of the two factors above as well as the current communication disruptions in the United States, the coronavirus has caused long delays in the voluntary disclosures that involve undisclosed financial assets in China. The schedule disruptions can last from weeks to months; in fact, in some cases, it is too early to be able to fully assess the impact of coronavirus on an offshore voluntary disclosure schedule.

While Sherayzen Law Office has been able to minimize the impact of coronavirus on the Chinese Offshore Voluntary Disclosures, certain delays still exist due to clients’ inability to obtain the necessary information.

Contact Sherayzen Law Office for Help With Chinese Offshore Voluntary Disclosures

If you have undisclosed financial accounts or foreign businesses in China, contact Sherayzen Law Office for professional help as soon as possible. While the disruptions caused by coronavirus have been severe, by employing careful planning, we can still help you maximize your ability to complete your offshore voluntary disclosure in an accurate and timely manner.

We have already helped hundreds of US taxpayers like you, including in China, to successfully bring their financial and business affairs in full compliance with US tax laws. We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

2020 SDOP Eligibility Requirements | SDOP Tax Lawyer & Attorney

In a recent article, I mentioned that Streamlined Domestic Offshore Procedures (“SDOP”) will continue to be the most important voluntary disclosure option in 2020 for US taxpayers who reside in the United States. However, not all taxpayers will qualify to participate in the 2020 SDOP. In this article, I will discuss the main 2020 SDOP eligibility requirements.

2020 SDOP Eligibility Requirements: Background Information

The IRS introduced Streamlined Domestic Offshore Procedures in June of 2014 as part of the most radical overhaul of offshore voluntary disclosure process since the introduction of the Offshore Voluntary Disclosure Program (“OVDP”) in 2009.

The IRS created SDOP first to supplement OVDP, not to replace it. The idea was to mitigate the OVDP’s rigidity by streamlining the voluntary disclosure process for taxpayers who non-willfully failed to comply with US international tax requirements.

Almost from the start, SDOP grew in popularity and quickly eclipsed OVDP. Tens of thousands of taxpayers utilized this option to lower IRS penalties in a relatively (i.e. relative to OVDP) fast and painless way. As a result, SDOP continues to exist even today while the 2014 OVDP was closed in September of 2018.

2020 SDOP Eligibility Requirements: Five Main Eligibility Requirements

In order to quality to participate in the SDOP, taxpayers must meet all of the following requirements: (1) US residence; (2) US tax return filing compliance; (3) US international tax noncompliance; (4) non-willfulness; and (5) no IRS examination. Let’s discuss each requirement in more detail.

2020 SDOP Eligibility Requirements: US Residence

In order to participate in SDOP, a taxpayer must be a US tax resident who did not meet any of non-residence tests of Streamlined Foreign Offshore Procedures. This requirements applies differently to two categories of taxpayers.

The first category consists of US citizens and US permanent residents (i.e. “green card” holders). In order to satisfy the 2020 SDOP eligibility requirements, these taxpayers must have a US abode and must not physically reside outside of the United States for more than 329 full days in each of the past three years. I explore what this means further in a future article on Streamlined Foreign Offshore Procedures.

The second category of taxpayers includes all individuals who are not US citizens and US permanent residents. In order for these individuals to be eligible to participate in SDOP, they must satisfy the substantial presence test in each of the past three years. Generally, under 26 U.S.C. §7701(b)(3), an individual meets the substantial presence test if the sum of the number of days on which such individual was present in the United States during the current year and the 2 preceding calendar years (when multiplied by the applicable multiplier) equals or exceeds 183 days. There are many exceptions to this rule, but they are outside of the scope of this article.

2020 SDOP Eligibility Requirements: Filing of US Tax Returns

In order to participate in the SDOP, a taxpayer must have previously filed a US tax return for each of the most recent three years for which the US tax return due date (or properly applied for extended due date) has passed. There is an exception to this rule for situations where a taxpayer’s income was below the tax return filing threshold and he was not required to file the tax return for that year.

2020 SDOP Eligibility Requirements: International Tax Noncompliance

An SDOP disclosure must have some relationship to US international tax noncompliance. A taxpayer must have failed to report income from a foreign financial asset and must have failed to file FBAR or any other US international information return, such as Forms 3520, 3520-A, 5471, 8865, 8938, 8621, 926, et cetera.

2020 SDOP Eligibility Requirements: Non-Willfulness

This is the most important and most difficult eligibility requirement for participating in SDOP: taxpayer’s violations of US international tax law must be non-willful. Moreover, they must be non-willful with respect to each aspect of the voluntary disclosure: FBARs, each international information return and foreign income. In other words, if a taxpayer was non-willful with respect to non-filing of Form 5471, but willful with respect to non-filing of FBARs, then, his entire eligibility to participate in SDOP is compromised.

SDOP provides the following definition of non-willfulness: “non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.” Obviously, proving non-willfulness is a matter highly dependent on facts and requires an individual approach to each client’s case. It is the job of an international tax attorney to make good use of the facts and determine whether non-willfulness can be established.

2020 SDOP Eligibility Requirements: Taxpayer Not Subject to Examination

Finally, a taxpayer who wishes to participate in SDOP must not be subject to an IRS civil examination or an IRS criminal investigation. Whether all relevant years are subject to an examination or just a few of them is irrelevant; it does not even matter whether the examination is focused on a particular international information return. In all of these cases, the taxpayer will most likely lose eligibility to conduct his voluntary disclosure through SDOP.

Contact Sherayzen Law Office for Professional Help With the Determination of Whether You Satisfied the 2020 SDOP Eligibility Requirements

If you have undisclosed foreign accounts or any other offshore assets and you wish to know whether you are eligible to participate in the 2020 SDOP, contact Sherayzen Law Office for professional legal help. Our experienced international tax law firm will thoroughly analyze your case, determine your SDOP eligibility, examine all alternative voluntary disclosure options and skillfully prepare the necessary tax and legal documents necessary to complete your offshore voluntary disclosure.

We have helped hundreds of US taxpayers with their offshore voluntary disclosures, and we can help you!https://sherayzenlaw.com/streamlined-domestic-offshore-procedures/

Contact Us Today to Schedule Your Confidential Consultation!

2020 Streamlined Domestic Offshore Procedures: Pros and Cons

Noncompliant US taxpayers with undisclosed foreign assets and foreign income should consider their voluntary disclosure options in this new year 2020. Similarly to 2019, I expect that this year Streamlined Domestic Offshore Procedures will continue to be the flagship voluntary disclosure option for such taxpayers who reside in the United States. In order for the readers to better understand why I make this assertion, I would like to discuss the advantages and disadvantages of participating in the 2020 Streamlined Domestic Offshore Procedures.

2020 Streamlined Domestic Offshore Procedures: Background Information and Purpose

The IRS created the Streamlined Domestic Offshore Procedures (sometimes abbreviated as “SDOP”) on June 18, 2014, though the Certification forms became available only a few months later. Since its introduction, Streamlined Domestic Offshore Procedures quickly eclipsed the then-existing IRS Offshore Voluntary Disclosure Program (“OVDP”) and became the most popular offshore voluntary disclosure option.

The main purpose of the Streamlined Domestic Offshore Procedures is to encourage noncompliant US taxpayers to voluntarily resolve their prior non-willful noncompliance with US international tax compliance requirements. These requirements include all US international information returns such as FBAR, Form 8938, Form 5471, Form 8621, Form 3520, Form 926, et cetera.

2020 Streamlined Domestic Offshore Procedures: Main Advantages

In exchange for this voluntary disclosure of their prior tax noncompliance, US taxpayers escape income tax penalties and pay only a one-time Miscellaneous Offshore Penalty with respect to their prior failures to file the required US international information returns. The Miscellaneous Offshore Penalty is usually far below the potential penalties normally associated with failure to file these forms. In other words, noncompliant taxpayers can greatly reduce their IRS noncompliance penalties through their participation in the Streamlined Domestic Offshore Procedures. This is one of the most important SDOP benefits.

Another advantage of the Streamlined Domestic Offshore Procedures is the limited scope of this voluntary disclosure option. Taxpayers only need to file a small number of amended US tax returns (usually three) and FBARs (usually six) – in other words, the filings are limited to regular statute of limitations without any expansions (as opposed to OVDP which required filings for the past eight years).

Moreover, despite the limited scope of the SDOP filings, taxpayers who utilize the Streamlined Domestic Offshore Procedures are able to fully resolve their prior US international tax noncompliance issues even if these years are not included in the actual SDOP filings. This means that the participating taxpayers are able “wipe the slate clean” – i.e. to erase their prior US international tax noncompliance from the time when it began.

The last major advantage of the Streamlined Domestic Offshore Procedures is that this option only requires to establish non-willfulness rather than reasonable cause. Non-willfulness is a much easier legal standard to satisfy (be careful, I am not saying that this is an “easy standard”, just an easier one) than reasonable cause.

2020 Streamlined Domestic Offshore Procedures: Main Disadvantages

For the purpose of this article, I will discuss only two major disadvantages to the Streamlined Domestic Offshore Procedures. First, the eligibility requirements are strict. This voluntary disclosure option is open only to taxpayers who filed their US tax returns for prior years and who are able to certify under the penalty of perjury that their prior noncompliance was non-willful. This certification has to be made specifically with respect to unreported foreign income, FBARs and each other international information return.

Most cases have positive and negative facts at the same time. Hence, a lot of taxpayers are actually in the “gray” area between willfulness and non-willfulness. This means that it is not easy to make a decision on whether a taxpayer is eligible to participate in the Streamlined Domestic Offshore Procedures. This decision should be done only by an experienced international tax attorney who specializes in this area of law, such as Mr. Eugene Sherayzen of Sherayzen Law Office.

The second major disadvantage of the Streamlined Domestic Offshore Procedures is lack of a definitive closure; there may be a follow-up audit after the IRS processes your voluntary disclosure package. Unlike OVDP, Streamlined Domestic Offshore Procedures does not offer a Closing Agreement without an audit. This means that going through Streamlined Domestic Offshore Procedures may not be the end of your case; the IRS can actually audit you over the next three years. If this happens, the audit of your voluntary disclosure will focus not only on the correctness of your disclosure, but also on the truthfulness and correctness of your non-willfulness certification.

Contact Sherayzen Law Office for Professional Help With 2020 Streamlined Domestic Offshore Procedures

If you have undisclosed foreign accounts or any other foreign assets, contact Sherayzen Law Office for professional help with your offshore voluntary disclosure. We have successfully helped hundreds of US taxpayers around the world with their offshore voluntary disclosures, including Streamlined Domestic Offshore Procedures. We can also help you!

Contact Us Today to Schedule Your Confidential Consultation!

2020 Offshore Voluntary Disclosure Options | US International Tax Lawyers

As the new year 2020 begins, it is important for US taxpayers with undisclosed foreign assets to consider their 2020 offshore voluntary disclosure options. Unlike last year, there have not been any drastic changes to the voluntary disclosure options since 2019. In this article, I would like to generally explore the 2020 offshore voluntary disclosure options available to US taxpayers who wish to reduce their IRS penalties by voluntarily resolving their prior US tax noncompliance concerning foreign assets and foreign income.

2020 Offshore Voluntary Disclosure Options: Streamlined Domestic Offshore Procedures

The Streamlined Domestic Offshore Procedures (“SDOP”) is currently the flagship voluntary disclosure option for US taxpayers who reside in the United States. SDOP is a highly beneficial voluntary disclosure option to non-willful taxpayers: it is simple, limited (in terms of the voluntary disclosure period for which tax returns and FBARs must be filed) and mild (in terms of its penalty structure). There are some drawbacks to SDOP, such as the imposition of the Miscellaneous Offshore Penalty on income-tax compliant foreign accounts, but the benefits offered by this option outweigh its deficiencies for most taxpayers.

The main challenge of SDOP is its requirement that a taxpayer certifies under the penalty of perjury that he was non-willful with respect to his prior income tax noncompliance, FBAR noncompliance and noncompliance with any other US international information tax return (such as Form 8938, 3520, 5471, et cetera). This is a huge problem for willful taxpayers and taxpayers who are in the “gray” area between willfulness and non-willfulness. It will be up to your international tax lawyer to make the determination on whether you are able to make this certification.

2020 Offshore Voluntary Disclosure Options: Streamlined Foreign Offshore Procedures

Streamlined Foreign Offshore Procedures (“SFOP”) is very similar to SDOP (in fact, both options were created in 2014), but it is even more beneficial to taxpayers who are able to satisfy SFOP’s eligibility requirements – this is a true amnesty program, because its participants do not pay IRS penalties of any kind, even on income tax due (taxpayers only need to pay the interest on additional tax due). Moreover, SFOP preserves SDOP’s non-invasive and limited scope of voluntary disclosure.

SFOP, however, is available to a much more limited number of US taxpayers who are able to satisfy its eligibility requirements, particularly those related to non-willfulness certification and physical presence outside of the United States. Again, you should contact Sherayzen Law Office to help you determine whether you meet the eligibility requirements of SFOP.

2020 Offshore Voluntary Disclosure Options: Delinquent FBAR Submission Procedures

Delinquent FBAR Submission Procedures (“DFSP”) is another voluntary disclosure option that fully eliminates IRS penalties. This is not a new option; in fact, in one form or another, it has always existed within the IRS procedures. Prior to 2014, it was even written into the OVDP (IRS Offshore Voluntary Disclosure Program) as FAQ#17.

While DFSP is highly beneficial to noncompliant US taxpayers, it is available to even fewer number of taxpayers than those who are eligible for SDOP and SFOP. This is the case due to two factors. First, DFSP has a very narrow scope – it applies only to FBARs. Second, DFSP has extremely strict eligibility requirements; even de minimis income tax noncompliance will deprive a taxpayer of the ability to use this option.

2020 Offshore Voluntary Disclosure Options: Delinquent International Information Return Submission Procedures

Delinquent International Information Return Submission Procedures (“DIIRSP”) has a very similar history to DFSP. In fact, it was “codified” into OVDP rules as FAQ#18. Similarly to DFSP, DIIRSP also offers the possibility of escaping IRS Penalties. DIIRSP has a broader scope than DFSP and applies to international information returns other than FBAR, such as Form 8938, 3520, 5471, 8865, 926, et cetera.

Since it turned into an independent voluntary disclosure option in 2014, DIIRSP’s eligibility requirements became much harsher. US taxpayers are now required to provide a reasonable cause explanation in order to escape IRS penalties under this option. On the other hand, the fact that there may be unreported income associated with international information returns is not an impediment by itself to participation in DIIRSP.

2020 Offshore Voluntary Disclosure Options: Modified IRS Traditional Voluntary Disclosure Program

The traditional IRS Offshore Voluntary Disclosure Program (“TVDP”) has existed for a very long time. However, it faded into a complete obscurity once the IRS opened its first major OVDP option in 2009. The closure of 2014 OVDP in September of 2018 has brought TVDP back to life, but in a modified format.

On November 20, 2018, the IRS has completely revamped the TVDP’s procedural structure and clarified the penalty imposition rules. I am almost tempted to call this new version of TVDP as “2018 TVDP”!

The main benefit of TVDP is that it is now the main voluntary disclosure option for taxpayers who willfully violated their US tax obligations. If you are willful taxpayer, contact Sherayzen Law Office to explore your voluntary disclosure option under the TVDP.

2020 Offshore Voluntary Disclosure Options: Reasonable Cause Disclosure

Since 2014, the popularity of Reasonable Cause disclosure (also known as “Noisy Disclosure”) has declined substantially due to the introduction of SDOP and SFOP. Nevertheless, Reasonable Cause disclosure continues to be a highly important voluntary disclosure alternative to official IRS voluntary disclosure options. In fact, the closure of the 2014 OVDP in September of 2018 has led to some resurgence of Reasonable Cause disclosures.

Reasonable Cause disclosure is based on the actual statutory language; it is not part of any official IRS program. Special care must be taken in using this option, because this is a high-risk, high-reward option. If a taxpayer is able to satisfy his high burden of proof, then, he will be able to avoid IRS penalties. If the IRS audits the Reasonable Cause disclosure and disagrees, this taxpayer may face significant IRS penalties and, potentially, years of IRS litigation.

Contact Sherayzen Law Office for Professional Analysis of Your 2020 Offshore Voluntary Disclosure Options

If you have undisclosed foreign assets, contact Sherayzen Law Office for professional help as soon as possible. We have successfully helped hundreds of US taxpayers from over 70 countries with their voluntary disclosures of foreign assets to the IRS, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!