Streamlined Foreign Offshore Procedure | International Tax Lawyer & Attorney

Hello and welcome to Sherayzen Law Office video blog. My name is Eugene Sherayzen and I’m an International tax attorney and owner of Sherayzen Law Office, Ltd.

Today, I’m continuing a series of vlogs from Austin, TX. I’m standing in front of the IRS campus that processes Offshore Voluntary Disclosures. What I would like to do is to focus on Offshore Voluntary Disclosures in this vlog; in particular, a very important and probably the best voluntary disclosure option that exists right now: Streamlined Foreign Offshore Procedures or SFOP, not to be confused with Streamlined Domestic Offshore Procedures (SDOP). These are two very different options.

Generally speaking, SFOP is better than SDOP as long as you can satisfy the eligibility requirements. What are the eligibility requirements?

We’ll highlight the three most important ones:

First, you have to satisfy strict a foreign residency requirement.

Second, you have to be able to certify under the penalty of perjury that you were non-willful with respect to your prior noncompliance with US International tax laws and you have to be able to certify it with respect to both foreign income that was not disclosed on the original US tax returns and US International information returns, each US International information return that applies to your case. If you have to file FBARs, then with respect to FBARs, if it is concerning Form 8938, then you have to certify it with respect to Form 8938. If it is concerning Form 5471, then you have to be able to certify your non-willfulness with respect to Form 5471.

Finally, the third requirement: your foreign income should be from a legal source. This requirement applies to both SDOP and SFOP and it is important to understand that it has to be a legal source from the federal point of view; not from the state point of view.

Let me give you an example: certain drugs which are legal under state law may not be legal under federal law. If some of your income is derived from the sales of those drugs, because they are legal in a certain state, or maybe the sales occurred overseas or you used a foreign subsidiary in order to make this income. It would be considered foreign-source income; so, if that income is legal even under foreign law, there’s a lot more stuff which is legal in some of the Central American countries that would not be legal here in the United States. That income would be considered illegal under federal law and so you cannot make a voluntary disclosure. You really have to think from the US federal tax perspective when it comes to determination of whether you can do a voluntary disclosure or you cannot do a voluntary disclosure.

The benefits of the Streamlined Foreign Offshore Procedures are tremendous; it is definitely the best option for US taxpayers for both income tax noncompliance and noncompliance with US International information returns. For example, if you have an FBAR noncompliance and you have income associated with the unreported accounts, Streamlined Foreign Offshore Procedures is the best way. There are no penalties; it is the closest approximation to a true amnesty program that the IRS has ever offered. You just have to pay the extra tax with interest; that’s it. There are no penalties imposed on the level of the US International information returns and there are no penalties imposed for income tax noncompliance. It’s a really great option. You only have to amend three years of tax returns, you don’t have to go back farther. You can actually file late returns under the Streamlined Foreign Offshore Procedures, something that is a big no-no under the Streamlined Domestic Offshore Procedures.

You can resolve your entire US International tax noncompliance in a very easy penalty-free way. It is a great option, but you need to consult with an attorney to make sure that you can certify under the penalty of perjury that you were non-willful. Usually, this type of certification involves a long explanation that would be attached to Form 14653 which is the certification form and that explanation should be drafted by an attorney.

If you would like to learn more about Streamlined Foreign Offshore Procedures, you can call me at (952) 500-8159 or you can email me at: [email protected]

Thank you for watching, until the next time.