SFOP Non-Residency | Streamlined Foreign Offshore Procedures Lawyer
Streamlined Foreign Offshore Procedures (“SFOP”) is currently the preferred offshore voluntary disclosure option for US taxpayers who reside overseas, recently came to the United States or recently left the United States. Hence, the issue of SFOP eligibility (i.e. the ability of a taxpayer to participate in this program) is very important for these taxpayers. Today, I would like to concentrate on the SFOP non-residency requirement (I will alternatively refer to it simply as “SFOP non-residency”).
SFOP Non-Residency: Two Main SFOP Legal Requirements
In addition to meeting the general procedural requirements, a taxpayer who wishes to do a SFOP voluntary disclosure must meet two specific legal requirements. First, he must satisfy the applicable non-residence requirement. Second, he must meet the non-willfulness requirement. As I pointed out above, the focus of today’s article is on the non-residency requirement.
SFOP Non-Residency: All Participants Must Meet This Requirement
From the outset, it is important to point out that all SFOP participants must meet the SFOP non-residency requirement. This means that, in case of joint filers, both spouses must satisfy this requirement. This is the case even if only one spouse has unreported foreign assets.
SFOP Non-Residency: Two Categories
There are two distinct SFOP non-residency requirements depending on the immigration status of SFOP participants. The first type of non-residency requirements applies only to US citizens, US Lawful Permanent Residents (a/k/a “green card holders”) and their estates. The second type applies to everyone else.
SFOP Non-Residency: US Citizens and US Permanent Residents
In order to meet the SFOP non-residency requirement, a US citizen or US Permanent Resident (or his estate) must satisfy the following test:
1. In any one or more of the most recent three years for which the US tax return due date (including proper due date extensions) has passed;
2. He did not have a US abode; and
3. He was physically outside of the United States for at least 330 full days.
SFOP instructions specifically cite IRC §911 and its regulations for interpreting the term “abode”, which the IRS defines as one’s home, habitation, residence, domicile, or place of dwelling; it is not equivalent to one’s principal place of business. The IRS confirmed that temporary presence in the United States or maintenance of a dwelling in the United States does not necessarily mean that one has an abode in the United States.
SFOP Non-Residency: IRS Examples for US Citizens and US Permanent Residents
The SFOP instructions offer two examples where a US citizen or US Permanent Resident meets the SFOP non-residency requirement. I have provided both examples here verbatim:
“Example 1: Mr. W was born in the United States but moved to Germany with his parents when he was five years old, lived there ever since, and does not have a U.S. abode. Mr. W meets the non-residency requirement applicable to individuals who are U.S. citizens or lawful permanent residents.
Example 2: Assume the same facts as Example 1, except that Mr. W moved to the United States and acquired a U.S. abode in 2012. The most recent 3 years for which Mr. W’s U.S. tax return due date (or properly applied for extended due date) has passed are 2013, 2012, and 2011. Mr. W meets the non-residency requirement applicable to individuals who are U.S. citizens or lawful permanent residents.”
Please, note that example 2 emphasizes the fact that the non-residency requirement is satisfied even if an individual complies with it in only one of the past three years.
SFOP Non-Residency: Other Individuals
The second type of the SFOP non-residency requirement applies to all individuals who do not fit into the first category (i.e. they are not US citizens or US Permanent Residents). An individual from the second category meets the SFOP non-residency requirement if:
1. In any one or more of the most recent three years for which the US tax return due date (including proper due date extensions) has passed;
2. He did not meet the substantial presence test described in IRC §7701(b)(3).
SFOP Non-Residency: Substantial Presence Test
The Substantial Presence Test of IRC §7701(b)(3) is used to determine whether a person was a US tax resident in a given tax year. The Substantial Presence Test is satisfied if:
1. The individual was present in the United States for at least 31 days during the tax year in question; and
2. The sum of the number of days on which such individual was present in the United States during the current year and the two preceding calendar years equals or exceeds 183 days. The amount of days in the two preceding years should be multiplied by the applicable multiplier as follows: first preceding year – one-third; second preceding year – one-sixth.
I wish to emphasize that this is the general rule. There are numerous exceptions to the Substantial Present Test, including the “closer connection exception” and certain visa exemptions.
SFOP Non-Residency: IRS Example for Other Individuals
The IRS SFOP instructions again provide a useful example, which I copied here:
“Example 3: Ms. X is not a U.S. citizen or lawful permanent resident, was born in France, and resided in France until May 1, 2012, when her employer transferred her to the United States. Ms. X was physically present in the U.S. for more than 183 days in both 2012 and 2013. The most recent 3 years for which Ms. X’s U.S. tax return due date (or properly applied for extended due date) has passed are 2013, 2012, and 2011. While Ms. X met the substantial presence test for 2012 and 2013, she did not meet the substantial presence test for 2011. Ms. X meets the non-residency requirement applicable to individuals who are not U.S. citizens or lawful permanent residents.”
Contact Sherayzen Law Office for Professional Help With Streamlined Foreign Offshore Procedures, Including SFOP Non-Residency and Non-Willfulness Requirements
If you are not in compliance with US tax laws concerning foreign assets and foreign income, please contact Sherayzen Law Office for professional help as soon as possible. We have successfully helped hundreds of US taxpayers around the globe with their offshore voluntary disclosures, including Streamlined Foreign Offshore Procedures. We can help You!
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