2020 SDOP Eligibility Requirements | SDOP Tax Lawyer & Attorney

In a recent article, I mentioned that Streamlined Domestic Offshore Procedures (“SDOP”) will continue to be the most important voluntary disclosure option in 2020 for US taxpayers who reside in the United States. However, not all taxpayers will qualify to participate in the 2020 SDOP. In this article, I will discuss the main 2020 SDOP eligibility requirements.

2020 SDOP Eligibility Requirements: Background Information

The IRS introduced Streamlined Domestic Offshore Procedures in June of 2014 as part of the most radical overhaul of offshore voluntary disclosure process since the introduction of the Offshore Voluntary Disclosure Program (“OVDP”) in 2009.

The IRS created SDOP first to supplement OVDP, not to replace it. The idea was to mitigate the OVDP’s rigidity by streamlining the voluntary disclosure process for taxpayers who non-willfully failed to comply with US international tax requirements.

Almost from the start, SDOP grew in popularity and quickly eclipsed OVDP. Tens of thousands of taxpayers utilized this option to lower IRS penalties in a relatively (i.e. relative to OVDP) fast and painless way. As a result, SDOP continues to exist even today while the 2014 OVDP was closed in September of 2018.

2020 SDOP Eligibility Requirements: Five Main Eligibility Requirements

In order to quality to participate in the SDOP, taxpayers must meet all of the following requirements: (1) US residence; (2) US tax return filing compliance; (3) US international tax noncompliance; (4) non-willfulness; and (5) no IRS examination. Let’s discuss each requirement in more detail.

2020 SDOP Eligibility Requirements: US Residence

In order to participate in SDOP, a taxpayer must be a US tax resident who did not meet any of non-residence tests of Streamlined Foreign Offshore Procedures. This requirements applies differently to two categories of taxpayers.

The first category consists of US citizens and US permanent residents (i.e. “green card” holders). In order to satisfy the 2020 SDOP eligibility requirements, these taxpayers must have a US abode and must not physically reside outside of the United States for more than 329 full days in each of the past three years. I explore what this means further in a future article on Streamlined Foreign Offshore Procedures.

The second category of taxpayers includes all individuals who are not US citizens and US permanent residents. In order for these individuals to be eligible to participate in SDOP, they must satisfy the substantial presence test in each of the past three years. Generally, 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. There are many exceptions to this rule, but they are outside of the scope of this article.

2020 SDOP Eligibility Requirements: Filing of US Tax Returns

In order to participate in the SDOP, a taxpayer must have previously filed a US tax return 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. There is an exception to this rule for situations where a taxpayer’s income was below the tax return filing threshold and he was not required to file the tax return for that year.

2020 SDOP Eligibility Requirements: International Tax Noncompliance

An SDOP disclosure must have some relationship to US international tax noncompliance. A taxpayer must have failed to report income from a foreign financial asset and must have failed to file FBAR or any other US international information return, such as Forms 3520, 3520-A, 5471, 8865, 8938, 8621, 926, et cetera.

2020 SDOP Eligibility Requirements: Non-Willfulness

This is the most important and most difficult eligibility requirement for participating in SDOP: taxpayer’s violations of US international tax law must be non-willful. Moreover, they must be non-willful with respect to each aspect of the voluntary disclosure: FBARs, each international information return and foreign income. In other words, if a taxpayer was non-willful with respect to non-filing of Form 5471, but willful with respect to non-filing of FBARs, then, his entire eligibility to participate in SDOP is compromised.

SDOP provides the following definition of non-willfulness: “non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.” Obviously, proving non-willfulness is a matter highly dependent on facts and requires an individual approach to each client’s case. It is the job of an international tax attorney to make good use of the facts and determine whether non-willfulness can be established.

2020 SDOP Eligibility Requirements: Taxpayer Not Subject to Examination

Finally, a taxpayer who wishes to participate in SDOP must not be subject to an IRS civil examination or an IRS criminal investigation. Whether all relevant years are subject to an examination or just a few of them is irrelevant; it does not even matter whether the examination is focused on a particular international information return. In all of these cases, the taxpayer will most likely lose eligibility to conduct his voluntary disclosure through SDOP.

Contact Sherayzen Law Office for Professional Help With the Determination of Whether You Satisfied the 2020 SDOP Eligibility Requirements

If you have undisclosed foreign accounts or any other offshore assets and you wish to know whether you are eligible to participate in the 2020 SDOP, contact Sherayzen Law Office for professional legal help. Our experienced international tax law firm will thoroughly analyze your case, determine your SDOP eligibility, examine all alternative voluntary disclosure options and skillfully prepare the necessary tax and legal documents necessary to complete your offshore voluntary disclosure.

We have helped hundreds of US taxpayers with their offshore voluntary disclosures, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

SDOP Real Estate Penalty | Offshore Voluntary Disclosure Law Firm

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, you need to 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!