Streamlined Domestic Offshore Procedures Lawyer: 2024 SDOP Eligibility Requirements

The introduction of the Streamlined Domestic Offshore Procedures (SDOP) in 2014 meant that the IRS finally recognized that there was a very large number of U.S. taxpayers who were non-willful with respect to their inability to comply with numerous obscure complex requirements of U.S. tax laws.  Since 2014, SDOP has been a highly successful voluntary disclosure option that I predict will remain as popular in 2024.  For this reason, in this short article, I will review the main six 2024 SDOP eligibility requirements.

2024 SDOP Eligibility Requirements: US Taxpayer

The first main requirement to be able to utilize SDOP is that the applicant is a US taxpayer. In the context of SDOP, this term is equivalent to a US tax resident.  This means that he should be one of the following: a U.S. citizen, U.S. lawful permanent resident, or he must have met the substantial presence test.

The substantial presence test is outlined in 26 U.S.C. 7701(b)(3). In general, 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.

2024 SDOP Eligibility Requirements: Not Eligible for SFOP

The second requirement to participate in SFOP is that the taxpayer fails to meet the non-residency requirements of Streamlined Foreign Offshore Procedures (SFOP). I describe the non-residency requirements of SFOP in detail in this article.

What happens if spouses file a joint tax return and one of the spouses fails the non-residency requirement but the other spouse meets it? In this case, both spouses are still eligible to participate in the SDOP.

2024 SDOP Eligibility Requirements: US Tax Returns Filed

In order to participate in SDOP, the taxpayer must have previously filed a US tax return (if required) 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.  In other words, a taxpayer cannot file a late original tax return as part of SDOP; he can only amend the returns that were already filed.

2024 SDOP Eligibility Requirements: Foreign Income and Information Return Violations

Another important eligibility requirement for SDOP is that the taxpayer must have failed to report foreign income and pay US taxes on it AND may have failed to file FBAR and/or and/or one or more international information returns (e.g. Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621) with respect to the foreign financial asset that generated the foreign income.  In other words, foreign income reporting violation is crucial for the SDOP participation.

2024 SDOP Eligibility Requirements: Non-Willfulness

This is the most important and most critical eligibility requirement to the participation in the Streamlined Domestic Offshore Procedures. The taxpayer’s violations of the applicable US international tax requirements must be non-willful.

The non-willful nature of violations must apply to everything: the failures to report the income from a foreign financial asset, pay tax as required by US tax law, file FBARs and file other international information returns (such as Forms 3520, 3520-A547154728938926, and 8621). If the failure to file the FBAR and any other information returns was willful, the participation in the Streamlined Domestic Offshore Procedures is not likely to be possible.

2024 SDOP Eligibility Requirements: SDOP Participation Must Be Timely

Finally, the fifth SDOP eligibility requirement is that the participating taxpayer is not subject to an IRS civil examination or an IRS criminal investigation, irrespective of whether the examination/investigation is related to undisclosed foreign financial assets or involves any of the years subject to the voluntary disclosure. If the taxpayer is already subject to such an examination/investigation, his participation in the Streamlined Domestic Offshore Procedure would not be considered timely.

Contact Sherayzen Law Office for Legal Help With Your Offshore Voluntary Disclosure

If you have undisclosed foreign accounts or any other offshore assets, contact Sherayzen Law Office for professional legal help. Our experienced international tax law firm will thoroughly analyze your case, estimate your current IRS penalty exposure, and determine your eligibility for the available voluntary disclosure options, including the SDOP, SFOP and other voluntary disclosure options.

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2024 Streamlined Foreign Offshore Procedures | US International Tax Law Firm

Streamlined Foreign Offshore Procedures has been the best voluntary disclosure option since its creation in 2014 for eligible US taxpayers with undisclosed foreign assets and foreign income, and I predict that it will remain so in the year 2024. Let’s discuss in more detail the unique advantages of the 2024 Streamlined Foreign Offshore Procedures.

2024 Streamlined Foreign Offshore Procedures: Background Information and Purpose

The IRS created the current Streamlined Foreign Offshore Procedures (usually abbreviated as “SFOP”) on June 18, 2014, though the Certification forms became available only a few months later. Streamlined Foreign Offshore Procedures quickly became the most popular option for US taxpayers who reside overseas, because it is the only voluntary disclosure option that can truly be called an “amnesty program” with zero penalties.

Why did the IRS create Streamlined Foreign Offshore Procedures and offered such favorable terms? The main reason is that the enforcement of international tax compliance for taxpayers who reside overseas is highly complex and very expensive. Where such noncompliance is willful, the penalty framework and deterrence considerations make it worthwhile for the IRS to engage in these expenses (although, even in these cases, the IRS offers a special voluntary disclosure option). With respect to non-willful taxpayers, however, this logic does not work well.

Hence, the IRS (correctly, in my opinion) decided that it would be in the best interests of the United States to allow noncompliant US taxpayers overseas to voluntarily come forward and resolve their prior tax noncompliance. In order to achieve this goal, the IRS decided to offer such a sweet deal to these taxpayers that it would make no sense for these taxpayers to remain noncompliant. Streamlined Foreign Offshore Procedures is precisely this “sweet deal” meant to encourage non-willful US taxpayers who reside overseas to voluntarily resolve their prior noncompliance with US international tax reporting requirements.

2024 Streamlined Foreign Offshore Procedures: the “Sweet Deal”

Streamlined Foreign Offshore Procedures offers four great advantages to eligible participants. First and most important, it is a true tax amnesty program, because there are no penalties for prior noncompliance. There are no income tax penalties; the taxpayers only need to pay the extra tax owed plus interest. There is also no Offshore Penalty for prior noncompliance with respect to FBAR and other US information tax returns. It is definitely the best deal a taxpayer can ever get when it comes to offshore voluntary disclosure programs.

Second, Streamlined Foreign Offshore Procedures offers a simplified (not simple, though) offshore voluntary disclosure procedure which covers a relatively short disclosure period. Unlike the OVDP (Offshore Voluntary Disclosure Program)SFOP only demands the taxpayers to file tax forms within the general statute of limitations for tax returns (i.e. past three years) and a regular statute of limitations for FBARs (i.e. past six years).

Third, Streamlined Foreign Offshore Procedures allows its participants to resolve their prior non-willful noncompliance with respect to unreported foreign income as well as pretty much any US international information return (FBARForm 8938Form 5471Form 8621Form 926, et cetera).

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

2024 Streamlined Foreign Offshore Procedures: Main Disadvantages

Usually, participation in the Streamlined Foreign Offshore Procedures is highly advantageous to noncompliant taxpayers. However, there are some disadvantages and shortcomings in this program. In this article, I will briefly discuss three of the most important of them.

First of all, Streamlined Foreign Offshore Procedures is available only to taxpayers who satisfied the program’s foreign residency requirements. Even if you resided outside of the United States during most of each year and you are a bona fide tax resident of a foreign country, you still may not satisfy the strict residency requirements of SFOP.

Second, there is an issue of a shifting burden of proof. When they participate in the Streamlined Foreign Offshore Procedures, taxpayers have the burden of proof to establish their non-willfulness with respect to their inability to timely report their foreign income as well as file FBARs and other US international information returns. Outside of the SFOP, the IRS has the burden of proof to establish willfulness; if it cannot carry this burden, then the taxpayer is automatically considered non-willful.

The problem is that most cases have positive and negative facts at the same time. This means that a lot of taxpayers are actually in the “gray” area between willfulness and non-willfulness. In many of these cases, the burden of proof may play a critical role in determining whether a taxpayer is eligible to participate in the Streamlined Foreign Offshore Procedures.

Finally, participation in the Streamlined Foreign Offshore Procedures does not provide a definitive closure to its participants. Unlike OVDPSFOP does not offer a Closing Agreement without an audit; there may be a follow-up audit after the IRS processes your voluntary disclosure package. This means that going through Streamlined Foreign 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 2024 Streamlined Foreign 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 Foreign Offshore Procedures. We can also help you!

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NPB Neue Privat Bank Signs Non-Prosecution Agreement | OVDP Lawyer

On July 18, 2018, the US Department of Justice (the “DOJ”) announced that it signed a Non-Prosecution Agreement with NPB Neue Privat Bank AG (“NPB”). Let’s explore in more detail the history of this case and its resolution.

Background Information: 2001 QI Agreement between NPB and the IRS

NPB is a Swiss private bank based in Zurich. In 2001, NPB entered into a Qualified Intermediary Agreement (“QI Agreement”) with the IRS, which had extensive requirements for US tax withholding and US information reporting. Among these requirements was the obligation for NPB to ask its new and existing US clients to complete IRS Forms W-9 if they engaged in US securities transactions. In such cases, NPB was required to report the relevant transactions on IRS Form 1099.

Based on the QI Agreement, NPB arrived at a paradoxical conclusion that became prevalent among Swiss banks in the early 2000s. It believed that, as long as the bank complied with its QI Agreement, it could continue to accept and service US taxpayers even if NPB knew or had reason to believe that these taxpayers engaged in tax evasion. In other words, the bank could service such clients as long as they were not trading US-based securities or the investment accounts were nominally structured in the name of a foreign-based entity. It does not appear that an opinion of a legal counsel was secured in support for this belief.

Background Information 2009: NPB Accepts Noncompliant US Taxpayers

Prior to 2009, NPB had relatively few US clients; in fact, at the close of 2008, all of the NPB accounts owned by its US clients held approximately 8 million Swiss francs in assets.

The situation changed dramatically in 2009. As a result of the UBS case and other signs of increased IRS activity with respect to undisclosed foreign accounts, major Swiss banks started closing accounts owned by US taxpayers, creating a flood of potential clients for NPB. In early 2009, certain external-asset managers asked the bank to give refuge to these taxpayers and their money. The managers told the bank that they asked their US clients to become tax compliant, but some of them still had not done so.

On March 9, 2009, the NPB’s board of directors unanimously voted to allow US taxpayers to open accounts with the bank, even for those clients who fled other Swiss banks. As a result, by the end of 2009, NPB accumulated close to 450 million Swiss francs in accounts owned or beneficially owned by US taxpayers. The DOJ estimated that only 69% of these assets were reported to the US government at that time.

It appears that the bank’s executives had hoped that their US clients would eventually come into full compliance with US tax laws, but no written or formal policy to encourage or mandate such compliance was ever created.

Years 2010-2012: NPB Stops Accepting US Clients and Implements Some Procedures to Encourage US Tax Compliance

In August of 2010, as a result of the fact that US tax enforcement made the environment for Swiss banks which accepted noncompliant US taxpayers more and more dangerous, NPB decided not to open any new accounts for US clients who were noncompliant with US tax laws.

This decision (which was not reduced to writing) did not stop the bank from continuing to service its already existing noncompliant US taxpayers. Moreover there were at least 89 US-related accounts, both declared and undeclared, held in the name of offshore structures, such as trusts or corporations. These offshore structures were domiciled in countries such as Panama, Liechtenstein, the British Virgin Islands, Hong Kong, and Belize. All of these structures, however, were set up before the clients were accepted by the bank.

Starting August of 2010, NPB finally started to require new US clients to provide Forms W-9. The existing clients were required to submit Form W-9 only starting in the summer of 2011. The bank started to require evidence of tax compliance from its external asset managers only in August of 2011.

Swiss Bank Program: NPB is a Category 1 Bank

On August 29, 2013, the DOJ announced the Swiss Bank Program, but it declared NPB as a Category 1 bank ineligible to participate in the Program. By that time, the DOJ already started its investigation of the bank and its activities with respect to noncompliant US taxpayers.

Non-Prosecution Agreement with the DOJ

NPB cooperated throughout the DOJ investigation. In fact, the bank turned over the identities of US account holders and beneficial owners of more than 88% of the US-held assets.

The parties finally reached the agreement on July 18, 2018, when they signed the Non-Prosecution Agreement. Under the Agreement, the DOJ promised not to prosecute NPB. In return, the bank agreed to pay a penalty of $5 million. The bank further agreed to cooperate in any related criminal or civil proceedings as well as demonstrate that it implemented the necessary procedure to stop misconduct involving undeclared US-related accounts.

Contact Sherayzen Law Office for Help With the Voluntary Disclosure of Your Foreign Accounts

The NPB-DOJ Non-Prosecution Agreement demonstrates the continued IRS focus on US international tax enforcement. The IRS has devoted considerable resources to this area and all noncompliant US taxpayers around the world are at a significant risk of discovery, not just taxpayers with undisclosed Swiss bank accounts.

If you have undisclosed foreign accounts, contact Sherayzen Law Office as soon as possible to explore your voluntary disclosure options. Time is of the essence: the IRS flagship Offshore Voluntary Disclosure Program (“OVDP”) will close on September 28, 2018.

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Ireland-Kazakhstan Tax Treaty Ratified | International Tax Lawyer News

On December 29, 2017, the President of Kazakhstan Nazarbayev signed the law for the ratification of the Ireland-Kazakhstan Tax Treaty for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income.

History of the Ireland-Kazakhstan Tax Treaty

The Ireland-Kazakhstan Tax Treaty was originally signed in Astana on April 26, 2017. Ireland already ratified the treaty through Statutory Instrument 479 on November 10, 2017. By ratifying the treaty on December 29, 2017, Kazakhstan completed the process for the treaty ratification on the part of Kazakhstan.

The Ireland-Kazakhstan Tax Treaty will enter into force once the ratification instruments are exchanged. The provisions of the Treaty will apply from January 1 of the year following its entry into force. The Treaty is the first tax treaty between Ireland and Kazakhstan.

Taxes Covered by the Ireland-Kazakhstan Tax Treaty

The Ireland-Kazakhstan Tax Treaty will apply to the following taxes. With respect to Ireland, the Treaty will apply to the income tax, the universal social charge, the corporation tax and the capital gains tax. For Kazakhstan, it will apply to the corporate income tax and the individual income tax. Identical or substantially similar taxes imposed by either state after the Treaty was signed are also covered by the Treaty.

Main Provisions of the Ireland-Kazakhstan Tax Treaty

Here is an overview of the most important provisions. Obviously, this is a very general description for educational purposes only, and it cannot be relied upon as a legal advice; you should contact a licensed attorney in Ireland or Kazakhstan for legal advice.

Article 4 of the Ireland-Kazakhstan Tax Treaty defines the meaning of the term “resident”. It should be noted that the Treaty applies only to Irish and Kazakh residents (see Article 2 of the Treaty).

Article 5 defines the term Permanent Establishment.

Article 6 states that income from the “immovable” property (i.e. real estate) is subject to taxation in a country where it is located. This includes business real estate. This provision, of course, does not exempt the owner of the real estate from the obligation to also pay taxes in his home country.

Article 7 deals with business profits. It states that “the profits of an enterprise of a Contracting State shall be taxable only in that Contracting State unless that enterprise carries on business in the other Contracting State through a permanent establishment situated therein.” In the latter case, “the profits of the enterprise may be taxed in the other Contracting State but only so much of them as is attributable to that permanent establishment.”

Article 8 states that “profits of an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that Contracting State.”

Article 9 deals with Associated Enterprises.

Article 10 establishes the maximum tax rates for dividends. In general, dividends should be taxed at a maximum rate of 5% if the beneficial owner is a company (other than a partnership) that directly holds at least 25 percent of the capital of the payer company; in all other cases, the tax rate should be no more than 15%.

Articles 11 and 12 establish the maximum tax withholding rate of 10% for interest and royalties respectively.

Articles 13 – 22, 24 and 25 deal with capital gains, employment income, director fees and certain special cases.

Article 23 establishes the usage of foreign tax credit to eliminate double-taxation under the Treaty.

Information Exchange and Tax Enforcement under the Ireland-Kazakhstan Tax Treaty

The Ireland-Kazakhstan Tax Treaty contains fairly strong provisions on the information exchange and tax enforcement. Article 26 provides for exchange of relevant tax information described in the Treaty. Article 27 obligates the signatory states to lend assistance for the purposes of collection of taxes.

Information Exchange under the Ireland-Kazakhstan Tax Treaty and FATCA Compliance

Article 26 of the Ireland-Kazakhstan Tax Treaty could be dangerous to US citizens who are also either Kazakh residents or citizens. The reason for it is FATCA which would obligate Ireland to turn over the information it receives under the Treaty directly to the IRS in cases where this information concerns noncompliant US tax residents. This may lead to an IRS investigation and the imposition of FBAR and other penalties on these US taxpayers.

Contact Sherayzen Law Office if You Have Unreported Foreign Accounts in Ireland or Kazakhstan

If you have undisclosed foreign accounts and/or foreign income in Ireland and Kazakhstan, contact Sherayzen Law Office as soon as possible. Our firm specializes in offshore voluntary disclosures and has helped hundreds of US taxpayers to deal with this issue. We can help You!

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