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-A, 5471, 5472, 8938, 926, 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.