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2024 Offshore Voluntary Disclosure Options | International Tax Lawyer

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Even as the year 2023 nears its end, numerous taxpayers continue to be substantially noncompliant with various US international tax laws. Hence, it is important for US taxpayers with undisclosed foreign assets to consider their 2024 offshore voluntary disclosure options. In this essay, I would like to provide an overview of these 2024 offshore voluntary disclosure options.

2024 Offshore Voluntary Disclosure Options: What is Offshore Voluntary Disclosure?

The term “offshore voluntary disclosure” refers to a series of legal processes established by the IRS to allow noncompliant US taxpayers to voluntarily come forward and disclose their prior US international tax noncompliance in exchange for more lenient IRS treatment. This leniency can express itself in various ways: avoidance of criminal prosecution, lower and even zero penalties, a shorter voluntary disclosure period, ability to make certain retroactive tax elections, et cetera.

In general, the benefits of a voluntary disclosure usually far outweigh the consequences of a disclosure during a potential IRS audit. There are exceptions, but they are usually limited to mishandled cases where either an improper voluntary disclosure path was chosen or the process of the disclosure was mishandled by the taxpayer (usually) or his tax attorneys. This is why it is important that you chose the right international tax attorney to help you with your offshore voluntary disclosure.

Let’s review the main 2024 offshore voluntary disclosure options and briefly describe them.

2024 Offshore Voluntary Disclosure Options: Streamlined Foreign Offshore Procedures

While the Streamlined Foreign Offshore Procedures (“SFOP”) was created already in 2012, it exists in its current form since June of 2014. It is a true tax amnesty program, because its participants do not pay IRS penalties of any kind, even on income tax due. The participants only need to pay the extra tax due on the amended tax returns plus interest on the tax.

Moreover, SFOP preserves SDOP’s non-invasive and limited scope of voluntary disclosure (see below). For example, you only need to amend the tax returns for the past three years and file FBARs for the past six years.

SFOP, however, is available to a limited number of US taxpayers who are able to satisfy its eligibility requirements, particularly those related to non-willfulness certification and physical presence outside of the United States. You should contact Sherayzen Law Office to help you determine whether you meet the eligibility requirements of SFOP.

2024 Offshore Voluntary Disclosure Options: Streamlined Domestic Offshore Procedures

Streamlined Domestic Offshore Procedures (“SDOP”) is currently the flagship voluntary disclosure option for US taxpayers who reside in the United States. While not as generous as SFOP, SDOP is still a very good voluntary disclosure option for non-willful taxpayers: it is simple, limited (in terms of the voluntary disclosure period for which tax returns and FBARs must be filed) and mild (in terms of its penalty structure). There are some drawbacks to SDOP, such as the potential imposition of the Miscellaneous Offshore Penalty on income-tax compliant foreign accounts, but the benefits offered by this option outweigh its deficiencies for most taxpayers.

The reason why the IRS is so generous lies in the fact that this voluntary disclosure option is open only to taxpayers who can certify under the penalty of perjury that they were non-willful with respect to their prior income tax noncompliance, FBAR noncompliance and noncompliance with any other US international information tax return (such as Form 3520, 5471, 8938 et cetera). It will be up to your international tax lawyer to make the determination on whether you are able to make this certification.

Moreover, a taxpayer cannot file a delinquent Form 1040 under the SDOP. SDOP only accepts amended tax returns (i.e Forms 1040X), not original late tax returns.

2024 Offshore Voluntary Disclosure Options: Delinquent FBAR Submission Procedures

Delinquent FBAR Submission Procedures (“DFSP”) is another voluntary disclosure option that fully eliminates IRS penalties. This is not a new option; in fact, in one form or another, officially or unofficially, it has always existed within the IRS procedures. Prior to 2019, it was even written into the OVDP (IRS Offshore Voluntary Disclosure Program) as FAQ#17 (though in a modified version).

While DFSP is highly beneficial to noncompliant US taxpayers, it is available to even fewer number of taxpayers than those who are eligible for SDOP and SFOP. This is the case due to two factors. First, DFSP has a very narrow scope – it applies only to FBARs. Second, DFSP has extremely strict eligibility requirements; even de minimis income tax noncompliance may deprive a taxpayer of the ability to use this option if it is sufficient to require an amendment of a tax return. In other words, DFSP only applies where SDOP, SFOP and VDP (see below) are irrelevant due to absence of unreported income.

2024 Offshore Voluntary Disclosure Options: Delinquent International Information Return Submission Procedures

Delinquent International Information Return Submission Procedures (“DIIRSP”) has a similar history to DFSP. In fact, it was “codified” into OVDP rules as FAQ#18. Similarly to DFSP, DIIRSP also offers the possibility of escaping IRS Penalties. DIIRSP has a broader scope than DFSP and applies to international information returns other than FBAR, such as Form 8938, 3520, 5471, 8865, 926, et cetera.

Since it turned into an independent voluntary disclosure option in 2014, DIIRSP’s eligibility requirements became much harsher. US taxpayers are now required to provide a reasonable cause explanation in order to escape IRS penalties under this option. On the other hand, the fact that there may be unreported income associated with international information returns is not an impediment by itself to participation in DIIRSP.

2024 Offshore Voluntary Disclosure Options: IRS Voluntary Disclosure Practice

The traditional IRS Offshore Voluntary Disclosure practice has existed for a very long time. However, it faded into complete obscurity once the IRS opened its first major OVDP option in 2009. The closure of the 2014 OVDP in September of 2018 has brought this option back to life, but in a new format and for modified purposes.

On November 20, 2018, the IRS has completely revamped this traditional voluntary disclosure option, modified its procedural structure and imposed a new tough (but relatively clear) penalty structure. This new version of the traditional voluntary disclosure is now officially called IRS Voluntary Disclosure Practice (“VDP”).

The chief advantage of VDP is that it is specifically designed to help taxpayers who willfully violated their US tax obligations to come forward to avoid criminal prosecution and lower their civil willful penalties. In other words, VDP is now the main voluntary disclosure option for willful taxpayers.

2024 Offshore Voluntary Disclosure Options: Reasonable Cause Disclosure

Since 2014, the popularity of Reasonable Cause disclosure (also known as “Noisy Disclosure”) has declined substantially due to the introduction of SDOP and SFOP. Nevertheless, Reasonable Cause disclosure continues to be a highly important voluntary disclosure alternative to official IRS voluntary disclosure options. It is now primarily used when SDOP and SFOP are not available for technical (i.e. some of their eligibility requirements are not met) or even strategic reasons.

Reasonable Cause disclosure is based on the actual statutory language; it is not part of any official IRS program. Special care must be taken in using this option, because this is a high-risk, high-reward option. If a taxpayer is able to satisfy this high burden of proof, then, he will be able to avoid all IRS penalties. If the IRS audits the Reasonable Cause disclosure and disagrees, this taxpayer may face significant IRS penalties and, potentially, years of IRS litigation.

Contact Sherayzen Law Office for Professional Analysis of Your 2024 Offshore Voluntary Disclosure Options

If you have undisclosed foreign assets, contact Sherayzen Law Office for professional help as soon as possible. We have successfully helped hundreds of US taxpayers from over 75 countries with their voluntary disclosures of foreign assets to the IRS, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Beware of Flat-Fee Lawyers Doing Streamlined Domestic Offshore Procedures

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Recently, I received a number of phone calls and emails from people who complained about incorrect filing of their Streamlined Domestic Offshore Procedures (“SDOP”) packages by lawyers who took their cases on a flat-fee basis. In this article, I would like to discuss why a flat fee is generally not well-suited for a proper SDOP preparation and why clients should critically examine all facts and circumstances before retaining flat-fee lawyers.

A small disclosure: the analysis below is my opinion and the result of my prior experience with SDOPs. Moreover, I am only describing general trends and there are certainly exceptions which may be applicable to a specific case. Hence, the readers should consider my conclusions in this article carefully and apply them only after examining all facts and circumstances related to a specific lawyer before making their final decision on whether to retain him.

Flat-Fee Lawyers versus Hourly-Rate Lawyers

The two main business models that exist in the professional tax community in the United States with respect to billing their clients are the hourly-rate model and the flat-fee model. The hourly-rate model means that an attorney’s fees will depend on the amount of time he actually worked on the case. The flat-fee model charges one fee that covers a lawyer’s work irrespective of how much time he actually spends on a case.

Both billing models have their advantages and disadvantages. Generally, the chief advantage of an hourly-rate model is potentially higher quality of work. The hourly-rate model has a built-in incentive for attorneys to do as accurate and detailed work as possible, maximizing the quality of the final work product. An hourly-rate attorney is likely to take more time to explore the documents, uncover hidden problems of the case and properly resolve them.

The disadvantage of an hourly-rate model is that it cannot make an absolutely accurate prediction of what the legal fees will ultimately be. However, this problem is usually mitigated by estimates – as long as he knows all main facts of the case, an experienced attorney can usually predict the range of his legal fees to cover the case. Only a discovery of substantial unexpected issues (that were not discussed or left unresolved during the initial consultation) will substantially alter the estimate, because more time would be needed to resolve these new issues.

The chief advantage of the flat-fee model is the certainty of the legal fee – the client knows exactly how much he will pay. A secondary advantage of this model is the built-in incentive for flat-fee lawyers to complete their cases as fast as possible.

However, this advantage is undermined by several serious disadvantages. First, the flat-fee model provides a powerful incentive for lawyers to spend the least amount of time on a client’s case in order to maximize their profits; in other words, the flat-fee model has a potential for undermining the quality of a lawyer’s work product. Of course, it does not happen in every case, but the potential for such abuse is always present in the flat-fee model.

Second, closely-related to the first problem, the flat-fee model discourages lawyers from engaging in a thorough analysis of their clients’ cases. This may later result in undiscovered issues that may later expose a client to a higher risk of an unfavorable outcome of the case. Again this does not happen in every case, but I have repeatedly seen this problem occur in voluntary disclosures handled by flat-fee lawyers and CPAs.

Finally, a client may actually over-pay for a flat-fee lawyer’s services compared to an hourly-rate attorney, because a flat-fee lawyer is likely to set his fees at a high level to make sure that he remains profitable irrespective of potential surprises contained in the case. Of course, there is a risk for flat-fee lawyers that the reverse may occur – i.e. despite being set to a high level, the fee is still too small compared to issues involved in a case.

The effective usage of either one of these billing models differs depending on where they are applied. In situations where the facts are simple and legal issues are clear, a flat-fee model may be preferable. However, where one deals with a complex legal situation and the facts cannot all be easily established during an initial consultation, the hourly-rate model with its emphasis on thoroughness and quality of legal work is likely to be the best choice.

Flat-Fee Lawyers Can Be An Inferior Choice for Streamlined Domestic Offshore Procedures

In my opinion and based on the analysis above, in the context of an SDOP voluntary disclosure, a flat-fee engagement is particularly dangerous because of the nature of offshore voluntary disclosure cases.

Voluntary disclosures are likely to deal with complex US international tax compliance issues and unclear factual patterns. It may be difficult to identify all legal issues and all US international tax reporting requirements during an initial consultation. There are too many facts that clients may simply not have at their disposal during an initial consultation. Moreover, additional issues and questions are likely to arise after the documents are processed. I once had a situation where I discovered that a client had an additional foreign corporation with millions of dollars only several months after the initial consultation – the corporation was already closed and the client forgot about it.

For these reasons, SDOP and offshore voluntary disclosures in general require an individualized, detailed and thorough approach as well as a hard-to-determine (during an initial consultation) depth of legal analysis which is generally ill-fit for a flat-fee engagement. A flat-fee lawyer is unlikely to accurately estimate how much time is required to complete a client’s case and, hence, unlikely to accurately set his flat fee for the case.

This can cause a huge conflict of interest as the case progresses. I have seen a number of cases where, in an attempt to remain profitable, flat-fee lawyers did their analysis too fast and failed to properly identify all relevant tax issues; as a result, the voluntary disclosures (including SDOP disclosures) done by them had to amended later by my firm. This caused significant additional financial costs and mental stress to my clients.

In my opinion, this potential conflict of interest makes the flat-fee model unsuitable for the vast majority of the SDOP cases.

Beware of Some Flat-Fee Lawyers Including Unnecessary Services Into the Flat Fee

This applies only to a tiny minority of flat-fee lawyers. I have observed several times where flat-fee lawyers included irrelevant services that the client never used to increase the flat fee for the case (for example, audit fees for years not included in the SDOP). My recommendation is that, if you decide to go with a flat-fee arrangement, you should make sure that it includes only the services that you will likely use.

Contact Sherayzen Law Office for Professional Help With Streamlined Domestic Offshore Procedures

Sherayzen Law Office is a leader in SDOP disclosures. We have helped clients from over 70 countries with their offshore voluntary disclosures, including SDOPs. Our firm follows an hourly-rate billing model, because we value the quality of our work above all other considerations. Of course, we make every effort to make our fees reasonable and competitive, but our priority is the peace of mind of our clients who know that they can rely on the creativity of our legal solutions and the high quality of our work.

Contact Us Today to Schedule Your Confidential Consultation!

Coronavirus Offshore Voluntary Disclosure: Problems & Opportunities

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The advancement of coronavirus in the United States and around the world has significantly disrupted the normal conditions and assumptions for a US taxpayer who engages in an offshore voluntary disclosure of his unreported foreign income and foreign assets. I will refer to a voluntary disclosure conducted in this context of the coronavirus disruptions as Coronavirus Offshore Voluntary Disclosure. In this essay, I would like to discuss the most unique problems and opportunities that arise in the context of a Coronavirus Offshore Voluntary Disclosure.

Coronavirus Offshore Voluntary Disclosure: Most Important Problems

The spread of coronavirus created two important problems to conducting an offshore voluntary disclosure of foreign assets and foreign income.

The first and most significant problem is the ability of taxpayers to obtain the information necessary for the correct completion of US international information returns such as FBAR (FinCEN Form 114), Form 8938, Form 8865, Form 5471, et cetera. Oftentimes, in order to complete these returns, taxpayers have to retrieve information from many years ago.

This is a difficult task even without the coronavirus, because electronic access is often limited to just a few years. In cases that involve small and regional banks, the electronic access to information may simply not exist. Hence, a taxpayer often has to engage in a long process of mailing letters to banks requesting information; it is also a standard practice for taxpayers to personally travel to a foreign financial institution to obtain the necessary information.

The coronavirus prohibitions have made such travel virtually impossible due to cancellation of flights between countries. Even traveling within a country has been severely impacted. Moreover, there have been significant disruptions to ability of taxpayers to access financial institutions in the quarantined areas, such as northern Italy. Many financial institutions have simply closed their branches and ceased to operate in a normal way.

The combination of all of these factors has significantly curtailed taxpayers’ ability to collect the vital information necessary for the completion of an offshore voluntary disclosure.

The second most important problem caused by the coronavirus panic are communication disruptions. During a voluntary disclosure, taxpayers need to have access to their financial advisors and their international tax attorney. I’ve already explained above how the coronavirus bank closures have affected such communications.

The most significant communication issue between a taxpayer and his international tax attorney has been limited to mailing documents, particularly securing an original signature for Certifications of Non-Willfulness, Reasonable Cause Statements, amended tax returns and certain other IRS documents (such as Extension of Statute of Limitations in the context of an IRS audit). The coronavirus containment procedures have affected the flow of regular mail around the world and have caused significant delays in obtaining signed documents from clients.

It should mentioned that the normal communications between a client and his attorney were not significantly impacted. If there were any communication problems, this is most likely the result of the attorney’s failure to take advantage of modern means of communication.

Sherayzen Law Office’s usage of email, phone, Skype, Viber and certain other platforms for information exchange and other modern means of communication has assured continuous and uninterrupted communication between our firm and our clients. We have also encouraged and helped our clients to adopt certain procedures to mitigate other problems that have risen as a result of the coronavirus panic.

Coronavirus Offshore Voluntary Disclosure: Unique Opportunities

The coronavirus panic created not only unusual problems, but also unique opportunities for taxpayers with undisclosed foreign assets and foreign income. I will discuss here the two most important coronavirus opportunities.

First, the spread of this virus has given more time for noncompliant US taxpayers to bring their tax affairs into compliance with US tax laws. Not only has the IRS ability to pursue new international tax cases has been impacted by the virus, but the IRS moved the tax filing deadline to July 15, 2020. This means that taxpayers suddenly have three more months to work on their offshore voluntary disclosures without any interruption with respect to current tax compliance.

Second, more time means that taxpayers now can plan for and adopt more complex and beneficial strategies with respect to their offshore voluntary disclosures. For example, taxpayers who were planning to file extensions can now adopt a strategy to shift their voluntary disclosure period by timely filing their 2019 tax returns and 2019 FBARs.

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

If you have undisclosed foreign bank accounts and other foreign assets, contact Sherayzen Law Office for professional help. We have successfully helped hundreds of US taxpayers to bring their tax affairs into full compliance with US tax laws, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Premier Minneapolis Minnesota Voluntary Disclosure Lawyer | International Tax Attorney

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Mr. Eugene Sherayzen, the founder and owner of Sherayzen Law Office, Ltd., is a premier Minneapolis Minnesota Voluntary Disclosure Lawyer. Why is this the case? Let’s explore the top five reasons for it.

Premier Minneapolis Minnesota Voluntary Disclosure Lawyer: Experience

Mr. Sherayzen started practicing law at the end of 2005. In other words, he has been an international tax lawyer for over 13 years. During this time, he has successfully conducted hundreds of voluntary disclosures for US taxpayers all around the world.

He is a highly experienced lawyer in every type of a voluntary disclosure: OVDP/OVDI (while these programs existed), Streamlined Domestic Offshore Procedures (“SDOP”), Streamlined Foreign Offshore Procedures (“SFOP”), Delinquent FBAR Submission Procedures, Delinquent International Information Return Submission Procedures and Reasonable Cause Disclosures.

During 2014-2016, Mr. Sherayzen also conducted the Transition to Streamlined Disclosure for some of his OVDP clients. Moreover, starting 2017, he has also helped his clients with the IRS audits of voluntary disclosures done pursuant to SDOP and SFOP. During all of these years, Mr. Sherayzen also helped clients with amendment of Forms 906 signed pursuant to OVDP or OVDI.

As a result of such an intense and diverse voluntary disclosure practice, Mr. Sherayzen has accumulated a tremendous, in many ways unique, amount of experience in offshore voluntary disclosures.

Premier Minneapolis Minnesota Voluntary Disclosure Lawyer: Knowledge

Knowledge comes with experience. Mr. Sherayzen may be considered a true expert on offshore voluntary disclosure. Not only does he possess a deep understanding of substantive US international tax law, but his extensive experience with offshore voluntary disclosures endowed him with a profound knowledge of the procedural aspects of offshore voluntary disclosures.

Premier Minneapolis Minnesota Voluntary Disclosure Lawyer: Ethical Creativity

This combination of knowledge and experience allows Mr. Sherayzen to devise creative ethical legal strategies for his clients’ offshore voluntary disclosures. Each strategy is customized based on the facts of each case. All pros and cons are carefully considered to achieve the necessary balance of risks and rewards. Potential IRS challenges are considered and prepared for. Each alternative strategy is discussed with each client in order to choose the most agreeable one to the client.

It should be emphasized that Mr. Sherayzen offers only those voluntary disclosure strategies which comply with the legal and ethical standards demanded by the IRS as well as the legal profession.

Premier Minneapolis Minnesota Voluntary Disclosure Lawyer: Customization

Mr. Sherayzen rejects “one size fits all” approach to offshore voluntary disclosure and strongly believes a case strategy must be considered only in light of the specific facts of each case. Too often, with dismay, he sees how many accountants and even lawyers herd their clients into one approach, charging a flat fee for it, without the proper consideration of specific facts of each case.

Mr. Sherayzen believes that each case is unique and deserves a special consideration of its special facts and circumstances. Each legal strategy must be adjusted to fit these facts and circumstances in order to produce the best result for the client.

Premier Minneapolis Minnesota Voluntary Disclosure Lawyer: Voluntary Disclosure Team

Mr. Sherayzen also counts on the support of a superb voluntary disclosure team of accountants and staff – a team which he has gradually built and trained over the past 13 years. He carefully chose each member of the team and personally trained them to master certain aspects of a voluntary disclosure. The team is not trained only in their specific duties, but also to help each other, creating a sense of comradeship among Sherayzen Law Office employees. Everyone’s work goes through at least two levels of review to assure the highest quality. As a result, Mr. Sherayzen and his team are able to conduct and produce successful highly-efficient high-quality offshore voluntary disclosures.

Contact Mr. Sherayzen Today to Schedule Your Confidential Consultation!

SDOP Real Estate Penalty | Offshore Voluntary Disclosure Law Firm

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One of the most important considerations in an offshore voluntary disclosure is the type of assets that form the Penalty Base for the imposition of the Miscellaneous Offshore Penalty. In this article, I would like to explore the issue of whether there is such a thing as SDOP Real Estate Penalty.

SDOP Real Estate Penalty: Streamlined Domestic Offshore Procedures Background

Streamlined Domestic Offshore Procedures or SDOP is an offshore voluntary disclosure option that was announced by the IRS in June of 2014. With the recent termination of the OVDP (Offshore Voluntary Disclosure Program), SDOP has become the main voluntary disclosure vehicle for eligible taxpayers.

Under the terms of the SDOP, a taxpayer voluntarily discloses his prior noncompliance with US international tax laws, files FBARs for the past six years, amends tax returns for the past three years and certifies under the penalty of perjury that his prior noncompliance with US tax laws was non-willful. Moreover, the taxpayer must pay a 5% Miscellaneous Offshore Penalty that supplants all other penalty structures associated with FBAR and other US international information returns (such Form 5471, 8865, et cetera).

SDOP Real Estate Penalty: SDOP Penalty Base

The 5% Miscellaneous Offshore Penalty is imposed on the entire SDOP Penalty Base. The SDOP Penalty Base is formed by the inclusion all foreign financial assets undisclosed on US international information returns as well as income-noncompliant foreign financial assets. This includes without limitation all assets listed on FBARs and Forms 8938, 5471, 8858, 8865, 3520 (the foreign trust portion), 3520-A, et cetera.

Is there A SDOP Real Estate Penalty?

Now, armed with this understanding of the structure of the SDOP Penalty Base, we can answer the question of whether there is such a thing as SDOP Real Estate Penalty. Since the SDOP Penalty Base is formed by the inclusion of all foreign financial assets and real estate is not a foreign financial asset, we can conclude that there is no SDOP Real Estate Penalty on the real estate owned directly by a US taxpayer.

What about real property owned through a foreign business entity or a foreign trust? Unfortunately, it is here where we encounter the hidden SDOP Real Estate Penalty. If the foreign entity (or income from this foreign entity) was not properly disclosed on Form 8938 or any other relevant information return which is used to avoid the duplication of reporting of foreign business ownership (i.e. Form 5471, 8865, 8858, 3520 and 3520-A), then the SDOP Penalty Base will include the fair market value of the undisclosed foreign entity. In other words, the SDOP Real Estate Penalty may be imposed on the value of the entity that is holding the real estate, not real estate per se.

This is very worrying news to taxpayers who hold real estate through foreign entities. In virtually all Latin American countries, US taxpayers usually own real estate through a corporation. This means that they are exposed to the imposition of SDOP Miscellaneous Offshore Penalty on their personal real estate that is held through a foreign entity simply because it is a local custom to do so.

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

If you have undisclosed foreign assets and/or foreign income, contact Sherayzen Law Office for professional help. Our legal team, led by an international tax attorney Eugene Sherayzen, is highly experienced in offshore voluntary disclosures of unreported offshore assets and income. Whether it is Indian mutual funds, Swiss Structured Products, a French Assurance Vie account, Polish lokatas, Australian Superannuation accounts, Canadian RRSPs, a Malaysian health insurance investment policy, a Singapore Central Provident Fund (CPF), an Italian Corporation, a British Limited Company, a Spanish rental property, a Panamanian Sociedad Anonima, a Kazakh foreign branch, a Jersey trust and many, many other varieties of foreign assets – we have done it all and successfully brought our clients in full compliance with the US international tax laws. We Can Help You!

Contact Us Today to Schedule Your Confidential Consultation!