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Streamlined Domestic Offshore Procedures Lawyer: 2024 SDOP Eligibility Requirements

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The introduction of the Streamlined Domestic Offshore Procedures (SDOP) in 2014 meant that the IRS finally recognized that there was a very large number of U.S. taxpayers who were non-willful with respect to their inability to comply with numerous obscure complex requirements of U.S. tax laws.  Since 2014, SDOP has been a highly successful voluntary disclosure option that I predict will remain as popular in 2024.  For this reason, in this short article, I will review the main six 2024 SDOP eligibility requirements.

2024 SDOP Eligibility Requirements: US Taxpayer

The first main requirement to be able to utilize SDOP is that the applicant is a US taxpayer. In the context of SDOP, this term is equivalent to a US tax resident.  This means that he should be one of the following: a U.S. citizen, U.S. lawful permanent resident, or he must have met the substantial presence test.

The substantial presence test is outlined in 26 U.S.C. 7701(b)(3). In general, 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.

2024 SDOP Eligibility Requirements: Not Eligible for SFOP

The second requirement to participate in SFOP is that the taxpayer fails to meet the non-residency requirements of Streamlined Foreign Offshore Procedures (SFOP). I describe the non-residency requirements of SFOP in detail in this article.

What happens if spouses file a joint tax return and one of the spouses fails the non-residency requirement but the other spouse meets it? In this case, both spouses are still eligible to participate in the SDOP.

2024 SDOP Eligibility Requirements: US Tax Returns Filed

In order to participate in SDOP, the taxpayer must have previously filed a US tax return (if required) 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.  In other words, a taxpayer cannot file a late original tax return as part of SDOP; he can only amend the returns that were already filed.

2024 SDOP Eligibility Requirements: Foreign Income and Information Return Violations

Another important eligibility requirement for SDOP is that the taxpayer must have failed to report foreign income and pay US taxes on it AND may have failed to file FBAR and/or and/or one or more international information returns (e.g. Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621) with respect to the foreign financial asset that generated the foreign income.  In other words, foreign income reporting violation is crucial for the SDOP participation.

2024 SDOP Eligibility Requirements: Non-Willfulness

This is the most important and most critical eligibility requirement to the participation in the Streamlined Domestic Offshore Procedures. The taxpayer’s violations of the applicable US international tax requirements must be non-willful.

The non-willful nature of violations must apply to everything: the failures to report the income from a foreign financial asset, pay tax as required by US tax law, file FBARs and file other international information returns (such as Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621). If the failure to file the FBAR and any other information returns was willful, the participation in the Streamlined Domestic Offshore Procedures is not likely to be possible.

2024 SDOP Eligibility Requirements: SDOP Participation Must Be Timely

Finally, the fifth SDOP eligibility requirement is that the participating taxpayer is not subject to an IRS civil examination or an IRS criminal investigation, irrespective of whether the examination/investigation is related to undisclosed foreign financial assets or involves any of the years subject to the voluntary disclosure. If the taxpayer is already subject to such an examination/investigation, his participation in the Streamlined Domestic Offshore Procedure would not be considered timely.

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

If you have undisclosed foreign accounts or any other offshore assets, contact Sherayzen Law Office for professional legal help. Our experienced international tax law firm will thoroughly analyze your case, estimate your current IRS penalty exposure, and determine your eligibility for the available voluntary disclosure options, including the SDOP, SFOP and other voluntary disclosure options.

Contact Today Us 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!

Streamlined Domestic Disclosure: Main Advantages | SDOP Attorney

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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 the now closed 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. Sometimes, 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!