Posts

SFOP Non-Residency | Streamlined Foreign Offshore Procedures Lawyer

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!

Streamlined Domestic Disclosure: Main Advantages | SDOP Attorney

At this point, Streamlined Domestic Offshore Procedures (“Streamlined Domestic Disclosure”) is undoubtedly the most popular offshore voluntary disclosure option. Let’s explore three main reasons for this preference of Streamlined Domestic Disclosure among US taxpayers.

Streamlined Domestic Disclosure: 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 Streamlined Domestic Disclosure as long as he satisfies all three parts of the eligibility criteria: US tax residency, 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.

Streamlined Domestic Disclosure 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 Disclosure definitely offers a number of advantages compared to other offshore voluntary disclosure options. I will discuss in this article only the main three advantages.

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

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.

Advantages of Streamlined Domestic Disclosure: Flexible Risk Management

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

There is no doubt that OVDP (the 2014 IRS Offshore Voluntary Disclosure Program) may have been the safest option available in the great majority of cases, but its “rewards” in terms of penalty rate, calculation of Penalty Base and other factors are generally (though, not always) inferior to those of the Streamlined Domestic Disclosure. Noisy Disclosures stand at the opposite end of the spectrum compared to the OVDP.

Streamlined Domestic Disclosure, however, occupies the middle ground. You only have to establish non-willfulness, not reasonable cause. This is a much lower standard. Moreover, this standard is applied to all international information returns, not just FBARs. At the same time, the penalty rate (see below) is generally far more advantageous than that of the OVDP.

Advantages of Streamlined Domestic Disclosure: Relatively Low Penalty Rate

One of the most cited advantages of the Streamlined Domestic Disclosure is the low penalty rate of 5%. Compared to the OVDP penalty rate of 27.5% or FBAR non-willful penalties outside of a voluntary disclosure program, this can be a very advantageous option. This is not always the case, but it is true in most non-willful cases.

Advantages of Streamlined Domestic Disclosure: Shortened Voluntary Disclosure Period

Another great advantage of Streamlined Domestic Disclosure is the smaller number of years covered by the voluntary disclosure period. Unlike the OVDP voluntary disclosure period (which covers eight years of FBARs and tax returns), this voluntary disclosure option 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 OVDP.

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

Despite having a much simpler procedure, Streamlined Domestic Disclosure may still be quite complex and require professional attention. There are a number of pitfalls that may seriously undermine the advantages of a Streamlined Domestic Disclosure. Sometime, unrepresented taxpayers may also make mistakes that will result in a disastrous result during a subsequent IRS audit.

This is why you need the professional help from Sherayzen Law Office. Our experienced legal team has helped hundreds of US taxpayers with their Streamlined Domestic Disclosures, and We Can Help You! Contact Us Today to Schedule Your Confidential Consultation!