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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!

Streamlined Domestic Offshore Procedures Audits | SDOP Tax Lawyer

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The great majority of offshore voluntary disclosures are currently done through Streamlined Filing Compliance Procedures. Hence, the majority of IRS audits concerning offshore voluntary disclosures are focused on Streamlined Filing Compliance Procedures – the most common type is the Streamlined Domestic Offshore Procedures Audit. This article discusses the main stages of the Streamlined Domestic Offshore Procedures Audit and provides some suggestions to attorneys who handle this type of an IRS audit.

Streamlined Domestic Offshore Procedures Audits: SDOP Background Information

Streamlined Domestic Offshore Procedures (“SDOP”) is an offshore voluntary disclosure option that has existed since June of 2014. It is extremely popular due the fact that it is the most convenient and the least expensive voluntary disclosure option (except the Reasonable Cause/Noisy Disclosure option) for taxpayers whose prior tax noncompliance was non-willful and who otherwise meet the SDOP eligibility requirements.

Under the SDOP, a taxpayer or tax professional prepares a voluntary disclosure package and mails it to the IRS. The voluntary disclosure package usually consists of amended tax returns for the past three years, copies of e-filed FBARs for the past six years, any required international information returns which do not form part of a tax return (such as Forms 3520), the payments of additional tax with interest, the payment of the Miscellaneous Offshore Penalty and Non-Willfulness Certification form (Form 14654) with a detailed explanation. Certain additional items may need to be included in the package.

Once the package arrives to its destination, it is processed by the IRS. Assuming that all of the SDOP submission requirements are met, the IRS reserves the right to audit the taxpayer(s) at any point within three years after the submission of the original SDOP voluntary disclosure package.

The exact process of a Streamlined Domestic Offshore Procedures Audit varies from case to case, but it usually contains all of the stages listed below.

Streamlined Domestic Offshore Procedures Audits: the Initiation Stage

All Streamlined Domestic Offshore Procedures Audits start in the same way. Once an IRS revenue agent is assigned to the case, the agent will send an initial letter to the taxpayer informing the taxpayer about the fact that his SDOP is being audited. Generally, the initial audit letter will explain that the IRS decided to examine certain tax returns and ask for all worksheets and supporting documents that were used to prepare the amended returns. The letter is likely to also contain a request for the taxpayer to contact the agent to schedule the initial meeting, which would usually include an interview of the taxpayer.

At this point, you should contact an international tax lawyer who specializes in Streamlined Domestic Offshore Procedures Audits. I strongly discourage you from even trying to represent yourself or to have your accountant represent you. It is very easy to get into trouble during an IRS audit and it is very hard and expensive to get out of such a situation afterwards.

Streamlined Domestic Offshore Procedures Audits: Initial Meeting and Interview Stage

Prior to the initial meeting, the taxpayer’s attorney should review all documents to make sure that they support the information on the tax returns. All supporting documents and worksheets should be neatly organized by subject and year. If the audited tax returns are incorrect, the attorney should make the decision on whether amended tax returns should be prepared prior to the initial meeting.

Additionally, the attorney should conduct an extensive preparation of his client for the interview. Read this article for more information on the IRS audit interview preparation specifically for Streamlined Domestic Offshore Procedures Audits.

The initial meeting usually commences with the interview of the taxpayer in the presence of his attorney. It is the attorney’s job to protect his client during the interview, including by making sure that the IRS questions are clear, explaining any confusing answers of the taxpayer, correcting the record based on available evidence and so on.

After the interview, the IRS agent will want to review with the attorney (and, sometimes, the client as well) the documents supplied on a very general level – i.e. he will want to know what is being submitted to him. The attorney should discuss with the agent any confusing parts of the case and familiarize the agent with the client’s story. If a case is very small, it is possible for an agent to cover everything in the first meeting, but it is very rare.

Streamlined Domestic Offshore Procedures Audits: Follow-Up IRS Requests

After the initial meeting, the IRS agent will take some time to review submitted documents, interview third parties where relevant (for example, the accountant who prepared the original tax returns), analyze the tax returns and the Non-Willfulness Certification.

Most likely, the agent will have additional follow-up questions. It is the job of the attorney to address them. Where necessary, the attorney should secure his client’s participation in order to answer the questions. In certain cases, additional meetings with the IRS agent may be required to increase the efficiency of the audit. Continuous cooperation with the IRS while promoting the client’s position is the key to long-term success.

One of the most problematic areas for the IRS agents in Streamlined Domestic Offshore Procedures Audits are PFIC calculations. A lot of agents simply do not know how to properly do PFIC calculations. In my practice, very often I have to go through the entire PFIC calculations with the agent in order to make sure that their calculations match mine.

Streamlined Domestic Offshore Procedures Audits: Conclusion of the IRS Audit

Once the IRS agent completes his review process, he will submit the preliminary results to the taxpayer and his attorney. The attorney needs to review carefully the final results and contact the agent in case he finds mistakes in the agent’s conclusions. The taxpayers’ attorney will also need to build a strategy with respect to the taxpayer’s response to the audit results depending on whether the taxpayer agrees or disagrees with the results of the audit.

The biggest issue in the Streamlined Domestic Offshore Procedures Audits is making sure that the Non-Willfulness Certification is not challenged by the IRS, because such a challenge may result in highly unfavorable consequences to the taxpayer, including a potential referral to the Tax Division of the US Department of Justice for a criminal investigation.

It should be mentioned that, even if the taxpayer agrees with the audit results, the Audit is not immediately over. The IRS agent will need to submit his conclusions to his technical advisor, his manager and the IRS National Office in Washington D.C. for the their approval of these conclusions before the audit can be officially completed.

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

An IRS audit of an offshore voluntary disclosure completed through Streamlined Domestic Offshore Procedures is one of the most important events in a taxpayer’s life. A lot is at stake during such an audit – financial stability, immigration status and, in exceptional circumstances, even personal freedom.

This is why it is so important for a taxpayer subject to an IRS audit of his Streamlined Domestic Offshore Procedures voluntary disclosure to retain the services of an experienced international tax lawyer to handle the audit professionally.

Sherayzen Law Office is a leader in the area of offshore voluntary disclosures and IRS audits of offshore voluntary disclosures. The firm’s owner, Mr. Eugene Sherayzen, is one of the most experienced international tax lawyers in this area, including IRS audits of a Streamlined Domestic Offshore Procedures submission. He can help You!

Contact Sherayzen Law Office Today to Schedule Your Confidential Consultation!