2025 SDOP Audit | Streamlined Domestic Offshore Procedures Lawyer
Every submission under the Streamlined Domestic Offshore Procedures (SDOP) may be subject to an IRS audit, including the submissions made in 2025. In this article, I will explain what is the 2025 SDOP Audi and what a taxpayer should expect during the Audit.
2025 SDOP Audit: Background Information on Streamlined Domestic Offshore Procedures
Streamlined Domestic Offshore Procedures is a voluntary disclosure option offered by the IRS since June of 2014 to noncompliant US taxpayers to settle their past tax noncompliance concerning foreign assets and foreign income at a reduced penalty rate. In order to participate in SDOP, a taxpayer must meet various eligibility requirements. The most important of these eligibility requirements is non-willfulness of prior noncompliance.
SDOP is likely to be the most convenient and the least expensive voluntary disclosure option for taxpayers who is not eligible for Streamlined Foreign Offshore Procedures and whose prior tax noncompliance was non-willful.
2025 SDOP Audit: Why SDOP Disclosures Are Subject to IRS Audits
SDOP audits originate within the very nature of SDOP. SDOP voluntary disclosures have certain eligibility requirements. Once taxpayers submit their disclosures, the IRS does not immediately subject them to an immediate comprehensive review of whether the disclosures met all eligibility requirements. There is a review process, but initially it focuses on whether the taxpayers met all formalities of the SDOP.
This is very different from the immediate comprehensive audit-like review of all items as part of the voluntary disclosure process that form part of some other programs, such as prior OVDPs (Offshore Voluntary Disclosure Program) or even current IRS Voluntary Disclosure Practice (VDP). These voluntary disclosure options usually also require the signing of Form 906, the Closing Agreement. SDOP does not have that final stage of signing Form 906.
This means that, if a suspicion arises concerning whether a taxpayer met the SDOP eligibility requirements, the only way for the IRS to resolve it is to audit the entire disclosure, particularly on the issue of non-willfulness. As part of the SDOP process, the IRS reserves the right to audit any SDOP submission at any point within three years after the submission of the original SDOP voluntary disclosure package.
2025 SDOP Audit Process: Initial Contact
The exact process of a Streamlined Submission Audit varies from case to case, but all of such audits have a similar format: initial letter with request for a meeting, meeting with an interview, review of submitted documents and (very likely) additional requests for information, potentially interview of other involved individuals (such as a tax preparer) and, finally, the results of an audit are provided by the IRS to taxpayer(s) and/or the representative indicated on Form 2848.
In other words, your 2025 SDOP Audit would commence in a way very similar to a regular IRS audit: the IRS sends letter to taxpayers and (if there is a Form 2848 on file) to their representatives. The letter explains that the IRS decided to examine certain tax returns (usually all three years of amended tax returns) and asks for submission of all documentation and work papers that the taxpayer or the tax preparer used to prepare the amended returns. Additionally, the letter requests that the taxpayers’ representative (or taxpayers if not represented) contact the IRS agent in charge of the audit to schedule the initial meeting.
2025 SDOP Audit Process: Interview and Follow-up
During the initial meeting, the IRS agent will review (at least to make sure he or she has what the IRS needs) the documents that the taxpayer supplied earlier in response to the IRS requests. In larger cases, the IRS agent will need a lot more time to later examine all of the submitted documents and see if he or she needs additional documents. If a case is very small, it is possible for an agent to cover everything in the first meeting, but it is very rare.
Also, during an initial meeting, there is going to be an interview with the taxpayer(s). I will discuss the interview separately in a different article.
Once the review of the initial package of documents is concluded, it is very likely that the IRS agent will have questions and additional document requests. The questions may be answered by the taxpayers’ attorney during a separate meeting with the agent; smaller questions may be settled over the phone.
If the IRS needs additional documentation, the agent will send out an additional request to taxpayers and/or their attorney. The answer will most likely need to be provided in writing (actually, it is often better to state your position in writing for the IRS Appeals Office).
Once the IRS completes its interview of other involved parties and reviews all evidence, it will make its decision and submit the results of the audit to the taxpayers and their tax attorney in writing. The taxpayers’ attorney will need to build a strategy with respect to the taxpayers’ response to the audit results depending on whether the taxpayers agree or disagree with the results of the audit.
Differences Between Your 2025 SDOP Audit and Regular IRS Audit
At first, it may seem that there are no big differences between a regular IRS audit and an SDOP audit. While procedurally this may be correct, substantively it is not.
The greatest difference between the two types of IRS audits is the subject-matter of what the IRS subjects to its review. While a regular IRS audit will concentrate on the tax returns only, a Streamlined Submission Audit will involve everything: amended tax returns, FBARs, other information returns and, most importantly, Non-Willfulness Certification. In other words, a Streamlined Submission Audit will focus not only on whether the tax forms are correct, but also on whether the taxpayer was actually non-willful with respect to his prior tax noncompliance.
This difference in the subject-matter examination will carry over to other aspects of a Streamlined Submission Audit: the taxpayers’ interview will focus on their non-willfulness arguments, third-party interviews of original tax preparers become a regular feature (this may be different from a regular IRS audit), and the final IRS results must necessarily make a decision on whether to challenge the taxpayers’ non-willfulness arguments.
Failure by a taxpayer to sustain his non-willfulness arguments may result in a disaster for the taxpayer with a potential referral to the Tax Division of the US Department of Justice for a criminal investigation.
This is why it is so important for a taxpayer subject to an SDOP Audit to retain the services of an experienced international tax lawyer to handle the audit professionally.
Contact Sherayzen Law Office for Professional Help with Your 2025 SDOP Audit
If the IRS audited your submission under the Streamlined Domestic Offshore Procedures, contact Sherayzen Law Office as soon as possible. Our international tax law firm is highly experienced in offshore voluntary disclosures (SDOP, SFOP, “noisy disclosures”, “quiet disclosures”, et cetera) and the IRS audits of voluntary disclosures, including the audits of SDOP submissions. We can Help You during Your IRS Audit! Contact Us Today to Schedule Your Confidential Consultation!