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Streamlined Domestic Offshore Procedures Lawyer: 2024 SDOP Advantages

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Since 2014, Streamlined Domestic Offshore Procedures (“SDOP”) has probably been the most popular offshore voluntary disclosure option, and I predict that it will remain so in the year 2024. In this article, I would like to explore main four 2024 SDOP advantages which US taxpayers should take into account while considering an offshore voluntary disclosure this year.

2024 SDOP Advantages: Background Information and General Requirements

The IRS created the Streamlined Domestic Disclosure as an offshore voluntary disclosure option on June 18, 2014. The IRS specifically the designed Streamlined Domestic Disclosure to address the critique of many practitioners and taxpayers that the 2012 OVDP did not adequately deal with US taxpayers who non-willfully violated their US tax obligations (for example, in cases where the taxpayers simply did not know about the existence of FBAR or Form 8938).

Any taxpayer can participate in the SDOP as long as he satisfies all six parts of this option’s eligibility criteria: US tax residency, not eligible for Streamlined Foreign Offshore Procedures (“SFOP”), original US tax returns filed for the past three years, foreign income and information return (such as FBAR or Form 8938) violations, absence of IRS examination or investigation and non-willfulness.

If a taxpayer satisfies the eligibility criteria, he then must comply with all of the required submissions. The key requirement here is the certification under the penalty of perjury that the taxpayer’s prior tax noncompliance was non-willful. This requirement is the heart of the Streamlined Domestic Disclosure and must be approached with special care.

The other requirements include filing of amended tax returns for the past three years (with all of the necessary information returns), filing FBARs for the past six years, payment of tax due with interest and payment of Miscellaneous Offshore Penalty. Other requirements may also apply depending on the specific situation of a taxpayer.

2024 SDOP Offers a Number of Advantages to Noncompliant US Taxpayers

While the list of the requirements above may seem like a lot of work, in reality, Streamlined Domestic Offshore Procedures definitely offers a number of advantages compared to other offshore voluntary disclosure options. I will discuss in this article only the main four advantages.

Keep in mind that the SDOP may not always be advantages to taxpayers. There are plenty of situations where other offshore voluntary disclosure options may be superior to the SDOP.

I also wish to emphasize that the analysis of advantages or disadvantages of a particular voluntary disclosure option is highly fact-specific. I strongly recommend that you contact Sherayzen Law Office for a detailed analysis of your voluntary disclosure options before you even attempt to proceed with your offshore voluntary disclosure.

2024 SDOP Advantages: Easier Risk Management

One of the greatest advantages (though, the one rarely discussed on the Internet) of the Streamlined Domestic Offshore Procedures is the opportunity this option offers to manage the voluntary disclosure risks. We can be even more precise – to manage the risk-reward ratio.

The 2024 SDOP is a disclosure option that offers a definitive transparent calculation of risks and rewards.  While the risks associated with non-willfulness are not always easy to determine, the rest of the SDOP framework, such as penalty rate, calculation of Penalty Base and other factors are generally (though, not always) much clearer than in riskier disclosure options such Noisy Disclosure, Delinquent International Information Return Submission Procedures (“DIIRSP”) and Reasonable Cause disclosures.

2024 SDOP Advantages: Legal Standard

Closely related to the risk management factor discussed above is another SDOP advantage of a lower legal standard of proof — non-willfulness. While proving non-willfulness can be a complicated and difficult process, it is still much easier than satisfying the reasonable cause standard.

The reasonable cause standard is immensely more difficult and tougher to meet for a taxpayer. Yet it is the statutory standard for penalty removal for pretty much every US international tax form outside of a voluntary disclosure. Reasonable cause is also the standard for even some other voluntary disclosure programs (for example, DIIRSP). Of course, IRS VDP does not require proving even non-willfulness, but its penalty system is a lot harsher than that of the SDOP.

2024 SDOP Advantages: Relatively Low Penalty Rate

One of the most cited advantages of the 2024 SDOP is the low penalty rate of 5%. This is usually a huge advantage over the very high IRS Voluntary Disclosure Practice (“VDP”) penalty rates or various penalties outside of a voluntary disclosure program (including in many cases FBAR non-willful penalties). This is not always the case, but it is true in most non-willful cases.

2024 SDOP Advantages: Shortened Voluntary Disclosure Period

Finally, another great advantage of Streamlined Domestic Offshore Procedures is the smaller number of years covered by the voluntary disclosure period. Unlike the old OVDP voluntary disclosure period (which used to cover eight years of FBARs and tax returns) and the current VDP voluntary disclosure period of up to six years, SDOP’s voluntary disclosure period only encompasses the years which are covered by a regular statute of limitations.

In other words, it only includes the past six years of FBARs (occasionally seven) and past three years of tax returns. Obviously, this is a lot more convenient than VDP.  It should be noted that a voluntary disclosure that involves an expatriation will require an increased number of amended tax returns.

Contact Sherayzen Law Office for Professional Help with Streamlined Domestic Disclosure

Even with all of its advantages, Streamlined Domestic Offshore Procedures may still be a very complex process that requires professional attention. There are a number of pitfalls that may seriously undermine the advantages of a Streamlined Domestic Disclosure. Sometimes, unrepresented taxpayers may also make mistakes that may have a disastrous result during a subsequent IRS audit.

This is why you need the professional help of Sherayzen Law Office. Our experienced legal team has helped hundreds of US taxpayers resolve their prior noncompliance with US international tax laws, including by using Streamlined Domestic Offsshore Procedures.

We Can Help You! Contact Us Today to Schedule Your Confidential Consultation!

50% Offshore Penalty of the 2014 OVDP

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The 50% Offshore Penalty is a unique feature of the 2014 OVDP. What is so unusual about this penalty is that its impact widens with each passing month and year to include and affect more and more US taxpayers. In this article, I would like to explore the emergence of the 50% Offshore Penalty and its importance to US international tax compliance.

2014 OVDP Penalty Structure

On June 18, 2014, the IRS completely changed the entire legal landscape of US voluntary disclosure. The unwieldy and uncompromising penalty structure of the 2012 OVDP was replaced by the new Streamlined Procedures and a completely modified 2014 OVDP.

Under the new rules, the IRS eliminated the 5% and 12.5% penalties of the 2012 OVDP and replaced them with milder and more flexible Streamlined Domestic Offshore Penalty of 5% and Streamlined Foreign Offshore Penalty of 0%. On the other hand, the old default 25% penalty of the 2012 OVDP evolved into a new stringent system of dual penalty structure: 27.5% default Offshore Penalty and 50% Offshore Penalty.

FAQ 7.2 and 50% Offshore Penalty

The 27.5% default Offshore Penalty applies unless the participating US taxpayer has foreign accounts in a bank on a special IRS list as described in FAQ 7.2.

FAQ 7.2 states that, starting August 4, 2014, any taxpayer who enters OVDP will be subject to a 50% Offshore Penalty if, at the time the Preclearance letter is submitted to the IRS-CI (Criminal Investigation), a “public disclosure” has already occurred.

FAQ 7.2. further states that a “public disclosure” has occurred if one of the following three events occurs. First, if the foreign financial institution (FFI) where the undisclosed foreign account is held or another “facilitator who assisted in establishing or maintaining the taxpayer’s offshore arrangement” (“facilitator”) is under IRS or US DOJ investigation. The investigation should be the one that is related to accounts that are beneficially owned by a US person.

Second, the FFI or facilitator is cooperating with the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person. In other words, where a foreign bank signs a Non-Prosecution Agreement with US DOJ; this means every Swiss bank that reached resolution with the DOJ under the Swiss Bank Program; OR

Third, the FFI or facilitator has been identified in a John Doe Summons seeking information about U.S. taxpayers who may hold financial accounts at this FFI or have accounts established or maintained by the facilitator.

FAQ 7.2 provides an example of when a public disclosure occurs: “a public filing in a judicial proceeding by any party or judicial officer; or public disclosure by the Department of Justice regarding a Deferred Prosecution Agreement or Non-Prosecution Agreement with a financial institution or other facilitator.

It is easy to see now why the 50% Offshore Penalty has been increasing in influence – every Non-Prosecution Agreement, every DOJ investigation, every John Doe summons automatically expands the application of the 50% Offshore Penalty to another FFI or even a set of FFIs.

Entire Penalty Base is Subject to 50% Offshore Penalty

If a public disclosure occurs with respect to the FFI or facilitor where the US taxpayer has one or more foreign accounts, the 50% Offshore Penalty applies not only to these accounts but to all of the taxpayer’s assets included in the penalty base. For example, if a US taxpayer has one account at UBS, ten accounts in an Australian bank (for which no public disclosure occurred) and a foreign rental property that generated unreported foreign income, the 50% Offshore Penalty will apply to all of these assets.

List of FFIs and Facilitators

The IRS published the list of all FFIs and Facilitators for which public disclosure has occurred with the dates when the 50% penalty is activated with respect to these FFIs and Facilitators. Here, I am only providing the list up to date through January 7, 2016:

UBS AG
Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
Wegelin & Co.
Liechtensteinische Landesbank AG
Zurcher Kantonalbank
swisspartners Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd., and swisspartners Versicherung AG
CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)
The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates
Sovereign Management & Legal, Ltd., its predecessors, subsidiaries, and affiliates (effective 12/19/14)
Bank Leumi le-Israel B.M., The Bank Leumi le-Israel Trust Company Ltd, Bank Leumi (Luxembourg) S.A., Leumi Private Bank S.A., and Bank Leumi USA (effective 12/22/14)
BSI SA (effective 3/30/15)
Vadian Bank AG (effective 5/8/15)
Finter Bank Zurich AG (effective 5/15/15)
Societe Generale Private Banking (Lugano-Svizzera) SA (effective 5/28/15)
MediBank AG (effective 5/28/15)
LBBW (Schweiz) AG (effective 5/28/15)
Scobag Privatbank AG (effective 5/28/15)
Rothschild Bank AG (effective 6/3/15)
Banca Credinvest SA (effective 6/3/15)
Societe Generale Private Banking (Suisse) SA (effective 6/9/15)
Berner Kantonalbank AG (effective 6/9/15)
Bank Linth LLB AG (effective 6/19/15)
Bank Sparhafen Zurich AG (effective 6/19/15)
Ersparniskasse Schaffhausen AG (effective 6/26/15)
Privatbank Von Graffenried AG (effective 7/2/15)
Banque Pasche SA (effective 7/9/15)
ARVEST Privatbank AG (effective 7/9/15)
Mercantil Bank (Schweiz) AG (effective 7/16/15)
Banque Cantonale Neuchateloise (effective 7/16/15)
Nidwaldner Kantonalbank (effective 7/16/15)
SB Saanen Bank AG (effective 7/23/15)
Privatbank Bellerive AG (effective 7/23/15)
PKB Privatbank AG (effective 7/30/15)
Falcon Private Bank AG (effective 7/30/15)
Credito Privato Commerciale in liquidazione SA (effective 7/30/15)
Bank EKI Genossenschaft (effective 8/3/15)
Privatbank Reichmuth & Co. (effective 8/6/15)
Banque Cantonale du Jura SA (effective 8/6/15)
Banca Intermobiliare di Investimenti e Gestioni (Suisse) SA (effective 8/6/15)
bank zweiplus ag (effective 8/20/15)
Banca dello Stato del Cantone Ticino (effective 8/20/15)
Hypothekarbank Lenzburg AG (effective 8/27/15)
Schroder & Co. Bank AG (effective 9/3/15)
Valiant Bank AG (effective 9/10/15)
Bank La Roche & Co AG (effective 9/15/15)
Belize Bank International Limited, Belize Bank Limited, Belize Corporate Services Limited, their predecessors, subsidiaries, and affiliates (effective 9/16/15)
St. Galler Kantonalbank AG (effective 9/17/15)
E. Gutzwiller & Cie, Banquiers (effective 9/17/15)
Migros Bank AG (effective 9/25/15)
Graubundner Katonalbank (effective 9/25/15)
BHF-Bank (Schweiz) AG (effective 10/1/15)
Finacor SA (effective 10/6/15)
Schaffhauser Kantonalbank (effective 10/8/15)
BBVA Suiza S.A. (effective 10/16/15)
Piguet Galland & Cie SA (effective 10/23/15)
Luzerner Kantonalbank AG (effective 10/29/15)
Habib Bank AG Zurich (effective 10/29/15)
Banque Heritage SA (effective 10/29/15)
Hyposwiss Private Bank Genève S.A. (effective 10/29/15)
Banque Bonhôte & Cie SA (effective 11/3/15)
Banque Internationale a Luxembourg (Suisse) SA (effective 11/12/15)
Zuger Kantonalbank (effective 11/12/15)
Standard Chartered Bank (Switzerland) SA, en liquidation (effective 11/13/15)
Maerki Baumann & Co. AG (effective 11/17/15)
BNP Paribas (Suisse) SA (effective 11/19/15)
KBL (Switzerland) Ltd. (effective 11/19/15)
Bank CIC (Switzerland) Ltd. (effective 11/19/15)
Privatbank IHAG Zürich AG (effective 11/24/15)
Deutsche Bank (Suisse) SA (effective 11/24/15)
EFG Bank AG (effective 12/3/15)
EFG Bank European Financial Group SA, Geneva (effective 12/3/15)
Aargauische Kantonalbank (effective 12/8/15)
Cornèr Banca SA (effective 12/10/15)
Bank Coop AG (effective 12/10/15)
Crédit Agricole (Suisse) SA (effective 12/15/15)
Dreyfus Sons & Co Ltd, Banquiers (effective 12/15/15)
Baumann & Cie, Banquiers (effective 12/15/15)
Bordier & Cie Switzerland (effective 12/17/15)
PBZ Verwaltungs AG (effective 12/17/15)
PostFinance AG (effective 12/17/15)
Edmond de Rothschild (Suisse) SA (effective 12/18/15)
Edmond de Rothschild (Lugano) SA (effective 12/18/15)
Bank J. Safra Sarasin AG (effective 12/23/15)
Coutts & Co Ltd (effective 12/23/15)
Gonet & Cie (effective 12/23/15)
Banque Cantonal du Valais (effective 12/23/15)
Banque Cantonale Vaudoise (effective 12/23/15)
Bank Lombard Odier & Co Ltd (effective 12/31/15)
DZ Privatbank (Schweiz) AG (effective 12/31/15)
Union Bancaire Privée , USP SA (effective 1/6/16)

Contact Sherayzen Law Office for Help with Your Undisclosed Foreign Accounts

If you have undisclosed foreign accounts, including those FFIs and Facilitators for which public disclosure has occurred, contact the experienced international tax team of Sherayzen Law Office, Ltd. Our international tax law firm has helped hundreds of US taxpayers around the globe to bring their tax affairs into full compliance with US tax laws, while reducing their penalty exposure.

Contact Us Today to Schedule Your Initial Consultation!