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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!

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 team and personally trained him 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!

SFOP Non-Residency | Streamlined Foreign Offshore Procedures Lawyer

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Streamlined Foreign Offshore Procedures (“SFOP”) is currently the preferred offshore voluntary disclosure option for US taxpayers who reside overseas, recently came to the United States or recently left the United States. Hence, the issue of SFOP eligibility (i.e. the ability of a taxpayer to participate in this program) is very important for these taxpayers. Today, I would like to concentrate on the SFOP non-residency requirement (I will alternatively refer to it simply as “SFOP non-residency”).

SFOP Non-Residency: Two Main SFOP Legal Requirements

In addition to meeting the general procedural requirements, a taxpayer who wishes to do a SFOP voluntary disclosure must meet two specific legal requirements. First, he must satisfy the applicable non-residence requirement. Second, he must meet the non-willfulness requirement. As I pointed out above, the focus of today’s article is on the non-residency requirement.

SFOP Non-Residency: All Participants Must Meet This Requirement

From the outset, it is important to point out that all SFOP participants must meet the SFOP non-residency requirement. This means that, in case of joint filers, both spouses must satisfy this requirement. This is the case even if only one spouse has unreported foreign assets.

SFOP Non-Residency: Two Categories

There are two distinct SFOP non-residency requirements depending on the immigration status of SFOP participants. The first type of non-residency requirements applies only to US citizens, US Lawful Permanent Residents (a/k/a “green card holders”) and their estates. The second type applies to everyone else.

SFOP Non-Residency: US Citizens and US Permanent Residents

In order to meet the SFOP non-residency requirement, a US citizen or US Permanent Resident (or his estate) must satisfy the following test:

1. In any one or more of the most recent three years for which the US tax return due date (including proper due date extensions) has passed;

2. He did not have a US abode; and

3. He was physically outside of the United States for at least 330 full days.

SFOP instructions specifically cite IRC §911 and its regulations for interpreting the term “abode”, which the IRS defines as one’s home, habitation, residence, domicile, or place of dwelling; it is not equivalent to one’s principal place of business. The IRS confirmed that temporary presence in the United States or maintenance of a dwelling in the United States does not necessarily mean that one has an abode in the United States.

SFOP Non-Residency: IRS Examples for US Citizens and US Permanent Residents

The SFOP instructions offer two examples where a US citizen or US Permanent Resident meets the SFOP non-residency requirement. I have provided both examples here verbatim:

“Example 1: Mr. W was born in the United States but moved to Germany with his parents when he was five years old, lived there ever since, and does not have a U.S. abode. Mr. W meets the non-residency requirement applicable to individuals who are U.S. citizens or lawful permanent residents.

Example 2: Assume the same facts as Example 1, except that Mr. W moved to the United States and acquired a U.S. abode in 2012. The most recent 3 years for which Mr. W’s U.S. tax return due date (or properly applied for extended due date) has passed are 2013, 2012, and 2011. Mr. W meets the non-residency requirement applicable to individuals who are U.S. citizens or lawful permanent residents.”

Please, note that example 2 emphasizes the fact that the non-residency requirement is satisfied even if an individual complies with it in only one of the past three years.

SFOP Non-Residency: Other Individuals

The second type of the SFOP non-residency requirement applies to all individuals who do not fit into the first category (i.e. they are not US citizens or US Permanent Residents). An individual from the second category meets the SFOP non-residency requirement if:

1. In any one or more of the most recent three years for which the US tax return due date (including proper due date extensions) has passed;

2. He did not meet the substantial presence test described in IRC §7701(b)(3).

SFOP Non-Residency: Substantial Presence Test

The Substantial Presence Test of IRC §7701(b)(3) is used to determine whether a person was a US tax resident in a given tax year. The Substantial Presence Test is satisfied if:

1. The individual was present in the United States for at least 31 days during the tax year in question; and

2. The sum of the number of days on which such individual was present in the United States during the current year and the two preceding calendar years equals or exceeds 183 days. The amount of days in the two preceding years should be multiplied by the applicable multiplier as follows: first preceding year – one-third; second preceding year – one-sixth.

I wish to emphasize that this is the general rule. There are numerous exceptions to the Substantial Present Test, including the “closer connection exception” and certain visa exemptions.

SFOP Non-Residency: IRS Example for Other Individuals

The IRS SFOP instructions again provide a useful example, which I copied here:

“Example 3: Ms. X is not a U.S. citizen or lawful permanent resident, was born in France, and resided in France until May 1, 2012, when her employer transferred her to the United States. Ms. X was physically present in the U.S. for more than 183 days in both 2012 and 2013. The most recent 3 years for which Ms. X’s U.S. tax return due date (or properly applied for extended due date) has passed are 2013, 2012, and 2011. While Ms. X met the substantial presence test for 2012 and 2013, she did not meet the substantial presence test for 2011. Ms. X meets the non-residency requirement applicable to individuals who are not U.S. citizens or lawful permanent residents.”

Contact Sherayzen Law Office for Professional Help With Streamlined Foreign Offshore Procedures, Including SFOP Non-Residency and Non-Willfulness Requirements

If you are not in compliance with US tax laws concerning foreign assets and foreign income, please contact Sherayzen Law Office for professional help as soon as possible. We have successfully helped hundreds of US taxpayers around the globe with their offshore voluntary disclosures, including Streamlined Foreign Offshore Procedures. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!