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2024 Streamlined Domestic Offshore Procedures: Pros and Cons

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As was the case in the year 2023, I expect that Streamlined Domestic Offshore Procedures will continue to be the flagship offshore voluntary disclosure option in 2024 for US taxpayers who reside in the United States. This is why noncompliant US taxpayers should understand well the main advantages and disadvantages of participating in the 2024 Streamlined Domestic Offshore Procedures.

2024 Streamlined Domestic Offshore Procedures: Background Information and Purpose

The IRS created the Streamlined Domestic Offshore Procedures (usually abbreviated as “SDOP”) on June 18, 2014, though the Certification forms became available only a few months later. Since its introduction, Streamlined Domestic Offshore Procedures quickly eclipsed the then-existing IRS Offshore Voluntary Disclosure Program (“OVDP”) and became the most popular offshore voluntary disclosure option for US taxpayers who reside in the United States. As we discuss the advantages of the 2024 SDOP, you will quickly understand the reason for this meteoric rise in popularity of the SDOP.

The main purpose of the Streamlined Domestic Offshore Procedures is to encourage non-willful US taxpayers to voluntarily resolve their prior noncompliance with US international tax reporting requirements in exchange for a reduced penalty, simplified disclosure procedure and a shorter disclosure period. Pretty much any non-willful US international tax noncompliance can be resolved through SDOP: foreign income, FBAR, Form 8938, Form 5471, Form 8621, Form 926, et cetera.

2024 Streamlined Domestic Offshore Procedures: Main Advantages

In exchange for a voluntary disclosure of their prior tax noncompliance through SDOP, US taxpayers escape income tax penalties and pay only a one-time Miscellaneous Offshore Penalty with respect to their prior failures to file the required US international information returns. It is important to emphasize that the Miscellaneous Offshore Penalty replaces not only FBAR penalties, but also penalties for noncompliance with respect to other US international information returns, such as Forms 5471, 8865, 926, et cetera. Depending on the specific circumstances of a case, the Miscellaneous Offshore Penalty is usually below the combined potential penalties normally associated with failure to file these forms. In other words, noncompliant taxpayers can greatly reduce their IRS noncompliance penalties through their participation in the Streamlined Domestic Offshore Procedures. This is one of the most important SDOP benefits.

Another advantage of the Streamlined Domestic Offshore Procedures is the limited procedural scope of this voluntary disclosure option. What I mean by this is that the taxpayers should only submit the forms covered by the general statute of limitations unless they choose (i.e. not required, actually choose to do so) to do otherwise. The taxpayers only need to file three (sometime even less) amended US tax returns and six FBARs (sometimes seven and sometimes less than six). This limited disclosure stands in stark contrast with other major voluntary disclosure initiatives, such as 2014 OVDP (which required filings for the past eight years).

Moreover, despite the limited scope of the SDOP filings, taxpayers who utilize the Streamlined Domestic Offshore Procedures are usually able to fully resolve their prior US international tax noncompliance issues even if these years are not included in the actual SDOP filings. This means that the participating taxpayers are able “wipe the slate clean” – i.e. to erase their prior US international tax noncompliance from the time when it began. I should warn, however, that this is not necessarily always the case; I have already encountered efforts from the IRS to open years for which amended tax returns were not submitted (there were specific circumstances, however, in all of these cases that resulted in this increased IRS interference).

The last major advantage of the Streamlined Domestic Offshore Procedures is that this option only requires to establish non-willfulness rather than reasonable cause. Non-willfulness is a much easier legal standard to satisfy (be careful, this is NOT an “easy standard”, just an easier one) than reasonable cause.

2024 Streamlined Domestic Offshore Procedures: Main Disadvantages

Usually, participation in the Streamlined Domestic Offshore Procedures is highly advantageous to noncompliance taxpayers. However, there are some disadvantages and shortcomings in this program. In this article, I will concentrate only on the three most important of them.

First, this voluntary disclosure option is open only to taxpayers who filed their US tax returns for prior years. This requirement is the exact opposite of the Streamlined Foreign Offshore Procedures (“SFOP”) which allows for the late filing of original returns.

The problem is that there is a large segment of taxpayers who were perfectly non-willful in their prior US international tax noncompliance, but they never filed their US tax returns either due to special life circumstances (such as death in the family, illness, unemployment, et cetera), they were negligent or they believed that they were not required to file them (especially in situations where all of their income comes from foreign sources). These taxpayers would be barred from participating in the SDOP.

Second, when they participate in the Streamlined Domestic Offshore Procedures, the taxpayers have the burden of proof to establish their non-willfulness with respect to their inability to timely report their foreign income as well as file FBARs and other US international information returns. Outside of the SDOP, the IRS has the burden of proof to establish willfulness; if it cannot carry this burden, then the taxpayer is automatically considered non-willful.

The problem is that most cases have positive and negative facts at the same time. This means that a lot of taxpayers are actually in the “gray” area between willfulness and non-willfulness. In many of these cases, the burden of proof may play a critical role in determining whether a taxpayer is eligible to participate in the Streamlined Domestic Offshore Procedures. By the way, this decision should be made only by an experienced international tax attorney who specializes in this area of law, such as Mr. Eugene Sherayzen of Sherayzen Law Office.

Finally, participation in the Streamlined Domestic Offshore Procedures does not provide a definitive closure to its participants. Unlike OVDP (prior to its closure), SDOP does not offer a Closing Agreement without an audit; there may be a follow-up audit after the IRS processes your voluntary disclosure package This means that going through Streamlined Domestic Offshore Procedures may not be the end of your case; the IRS can actually audit you over the next three years. If this happens, the audit of your voluntary disclosure will focus not only on the correctness of your disclosure, but also on the truthfulness and correctness of your non-willfulness certification.

Contact Sherayzen Law Office for Professional Help With 2024 Streamlined Domestic Offshore Procedures

If you have undisclosed foreign accounts or any other foreign assets, contact Sherayzen Law Office for professional help with your offshore voluntary disclosure. We have successfully helped hundreds of US taxpayers around the world with their offshore voluntary disclosures, including Streamlined Domestic Offshore Procedures. We can also help you!

Contact Us Today to Schedule Your Confidential Consultation!

Streamlined Disclosure Attorney Austin | FATCA OVDP Lawyer

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If you are a resident of Austin, Texas, and you have undisclosed foreign accounts, it is highly likely that you have searched for Streamlined Disclosure Attorney Austin. Let’s analyze this search term – Streamlined Disclosure Attorney Austin – to understand exactly what kind of an attorney fits this search.

Streamlined Disclosure Attorney Austin Search Applies to SDOP and SFOP

Let’s first look into the search for “Streamlined Disclosure”. In reality, this is a search for an attorney who offers legal help with respect to two types of Streamlined Filing Compliance Procedures: SDOP (Streamlined Domestic Offshore Procedures) and SFOP (Streamlined Foreign Offshore Procedures).

Streamlined Disclosure Attorney Austin Search Applies to Attorneys Who Offer Legal Services in Austin

Now, we need to analyze the geographical aspect of this search – i.e. Austin. What does it mean when one says that he is looking for an Austin attorney? Obviously, it applies to attorneys who reside in Austin and who offer streamlined disclosure services in Austin.

Furthermore, this search for a Streamlined Disclosure Attorney Austin also applies to attorneys who reside outside of Austin but offer their legal services to the residents of Austin. The reason for this conclusion lies in the federal nature of the Streamlined Filing Compliance Procedures – this is purely an IRS program and it has no local input from Austin (except the IRS office in the city). Since this is federal law, the actual residence of your Austin attorney does not matter.

What really matters is whether he offers legal services in Austin and whether he is competent in the matters concerning Streamlined Filing Compliance Procedures. This leads to the final part of the search for Streamlined Disclosure Attorney Austin – what kind of a specialized “attorney” are you searching for?

Streamlined Disclosure Attorney Austin Search Applies Only to International Tax Attorneys

By searching for Streamlined Disclosure Attorney Austin, you are really trying to find a very specific kind of an attorney – an international tax attorney. SFOP, SDOP, OVDP (now closed) and any other voluntary disclosure options are just IRS programs (though, important programs) within the framework of the much larger legal area of US international tax law practice.

Hence, a Streamlined Disclosure Attorney Austin search is an attempt to find an international tax attorney who not only understands Streamlined Filing Compliance Procedures, but who also possesses deep understanding of the US international tax system, its laws and regulations, and the place SDOP and SFOP occupies within this system. This understanding is crucial to an attorney’s ability to properly analyze the case and choose the best legal strategy for his client.

Sherayzen Law Office can be Your International Tax Attorney

Sherayzen Law Office, Ltd. is an international tax law firm that specializes in all types of offshore voluntary disclosures, including OVDP closed, SDOP and SFOP. Our professional tax team, led by attorney Eugene Sherayzen, is highly experienced in helping US clients around the globe with their US international tax issues, including offshore voluntary disclosure. This is why Sherayzen Law Office should be your top candidate when you search for Streamlined Disclosure Attorney Austin.

Contact Us Today to Schedule Your Confidential Consultation!

IRS Form 14654 for Streamlined Domestic Offshore Procedures

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IRS Form 14654 is probably the most important part of the taxpayer’s voluntary disclosure under the Streamlined Domestic Offshore Procedures (“SDOP”). In this article, I would like to explore the various parts of IRS Form 14654 and explain why this form is so important.

Please, note that IRS Form 14654 was just revised in January of 2015. (Note: Latest update is September of 2017).

SDOP and IRS Form 14654

In June of 2014, the IRS announced the creation of a brand-new voluntary disclosure option for the taxpayers who reside in the United States – SDOP. As part of the disclosure package under SDOP, the IRS required U.S. taxpayers to submit a Certification of Non-Willfulness with respect to the taxpayers’ failure to timely disclose their foreign income and assets. At the end of August of 2014, this Certification became the new IRS Form 14654.

Purpose of IRS Form 14654

IRS Form 14654 constitutes an essential part of SDOP because this is the form used by the taxpayer to certify his non-willfulness with respect to his failure to timely and accurately report his foreign income and assets. Moreover, IRS Form 14654 also functions as a convenient summary of the calculation of the income tax liability as well as the SDOP Title 26 Miscellaneous Offshore Penalty (“Miscellaneous Offshore Penalty”). Finally, IRS Form 14654 allows the taxpayer to make a statement in support of his non-willfulness.

In order to accomplish these multiple tasks, IRS Form 14654 incorporates three different parts: income tax summary, Miscellaneous Offshore Penalty calculation, and the Certification with Explanation of Non-Willfulness.

Let’s take a closer look at each of these three parts of IRS Form 14654.

IRS Form 14654: Income Tax Summary

The very first part of the Certification is with respect to income tax liability. There is a pre-set language in IRS Form 14654 that requires the taxpayer to certify that: he is providing amended tax returns for each of the three most recent years, he filed the original tax returns previously, and he properly calculated his additional tax due with statutory interest on IRS Form 14654.

There is already a self-calculating table in the form that allows the taxpayer to quickly summarize his additional income tax liability with statutory interest per each covered year and the total amount due (which should be included on the checks written to the IRS).

IRS Form 14654: Miscellaneous Offshore Penalty Base

The second part of the certification is concerned with the taxpayer’s calculation of the Miscellaneous Offshore Penalty, or more precisely its penalty base. IRS Form 14654 provides a set of self-calculating tables to be completed by the taxpayer for all of the foreign accounts and other assets subject to the Miscellaneous Offshore Penalty. Each table requires the taxpayer to disclose the financial institution with address and description of the asset, the account number (where applicable), when the account was opened or asset acquired, and the end-of-year balance/asset value in U.S. dollars.

If additional space is needed, my experience has been that it would be best to attach to IRS Form 14654 a detailed statement disclosing all of this information. Note, the attachment should contain the taxpayer’s name, TIN and original signature.

In addition to the Miscellaneous Offshore Penalty’s penalty base calculation, IRS Form 14654 already contains the language which states that the taxpayer already filed his FBARs for the past six years and he met all of the eligibility requirements for SDOP.

IRS Form 14654: Calculation of Payments Due

The next part of the certification requires the taxpayer to summarize all of the payments due – the calculation of the Miscellaneous offshore Penalty, the total due and the total interest due. At the end of this section, the taxpayer should add all of these payments together to equal to the “Total Payment” due.

IRS Form 14654: “Comprehensive Certification” and Explanation of Non-Willfulness

Following the completion of the payment calculations section, IRS Form 14654 turns to the most important part of a SDOP case – the certification of non-willfulness with respect to income, tax payments and information returns.

The actual language for the certification of non-willfulness is already provided by the IRS on IRS Form 14654; this is a standard text that the taxpayer must agree to if he wishes to do a SDOP disclosure (i.e. this language cannot be modified). It is very important for international tax lawyers to discuss this language with their clients to make sure that they understand what they are agreeing to.

In addition to providing the standard certification text, IRS Form 14654 requires the taxpayer to provide a statement of facts and specific reasons for the original failure to report all income, pay all tax and submit all required information returns, including FBARs.

Please, note that the January of 2015 revision of IRS Form 14654 specifically allows the taxpayer to provide the explanation not only on the form itself, but also on a separate signed attachment (this clarified a previous confusion over the statement must be provided on the form only). Moreover, the new revision specifically states that the failure to provide a narrative statement of facts will result in the certification being deemed incomplete and the taxpayer will not qualify for the SDOP penalty relief.

The explanation of non-willfulness is undoubtedly the most important part of IRS Form 14654, because here the taxpayer has a unique opportunity to establish his legal case for non-willfulness. If this explanation is not deemed satisfactory to the IRS, the taxpayer may face willful FBAR penalties, civil fraud penalties and potentially even criminal penalties (see note below on the certification under the penalty of perjury).

In fact, the explanation of non-willfulness is so crucial to the taxpayer’s SDOP case, that I strongly recommend that the taxpayer refrains from completing the Streamlined certification himself or letting his accountant to do it. This is the job only for the taxpayer’s international tax attorney.

IRS Form 14654: Signature under the Penalties of Perjury

The last part of certification requires the taxpayer to sign the Form under the penalties of perjury. By signing IRS Form 14654, the taxpayer is certifying (1) that he is eligible for the Streamlined Domestic Offshore Procedures; (2) that all required FBARs have now been filed; (3) that the failure to report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct; and (4) that the miscellaneous offshore penalty amount is accurate.

Contact Sherayzen Law Office for Help with IRS Form 14654 and Your Voluntary Disclosure Under the Streamlined Domestic Offshore Procedures

If you wish to do the voluntary disclosure of your foreign accounts under the Streamlined Domestic Offshore Procedures, contact Sherayzen Law Office for professional help. Despite the fact that SDOP only appeared last June and IRS Form 14654 was created at the end of August of 2014, our international tax law firm has already completed SDOP disclosures for a number of our clients, and we can also help you.

Contact Us to Schedule Your Initial Consultation! Remember, contact Sherayzen Law Office is Confidential!