IRS Streamlined Foreign Offshore Procedures (SFOP)
The purpose of the program is to bring foreign residents into compliance for reporting foreign accounts, assets, investments and income. For the past few years, the Internal Revenue Service has been taking an aggressive approach to foreign accounts compliance. When a person has unreported offshore accounts, they may become subject to various IRS offshore penalties, such as FBAR penalties.
Benefits of the Streamlined Foreign Procedures
The Streamlined Foreign Offshore Procedures offers Taxpayers a complete penalty waiver. U.S. Taxpayers who qualify as foreign residents may benefit greatly from the Streamlined Foreign Offshore Procedures.
It allow expats and non-residents to get into IRS tax compliance, without worrying about offshore penalties. Unlike the domestic procedures, under SFOP all IRS offshore penalties are waived. In addition, once the applicant applies the Foreign Earned Income Exclusion and Foreign Tax Credits (if applicable) to any potential tax liability — many clients end-up having no tax liability AND no penalties.
Eligibility for Streamlined Foreign Offshore
The foreign streamlined procedures comes with its own set of filing requirements and procedures. Overall, the submission process is easier for streamlined foreign than it is for streamlined domestic.
Because a person can submit original tax returns and there is no penalty calculation.
A. Meet the Applicable Non-Residency Requirement
There are two different tests to consider, depending the status of the foreign resident.
U.S. Citizens and Green Card Holders (Legal Permanent Resident)
When an SFOP applicant is a U.S. citizen or Green Card Holder, they must meet the 330-day rule in order to qualify as a foreign resident.
As provided by the IRS:
“Individual U.S. citizens or lawful permanent residents, or estates of U.S. citizens or lawful permanent residents, meet the applicable non-residency requirement if, in any one or more of the most recent three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the individual did not have a U.S. abode and the individual was physically outside the United States for at least 330 full days. “
Under IRC section 911 and its regulations, which apply for purposes of these procedures, neither temporary presence of the individual in the United States nor maintenance of a dwelling in the United States by an individual necessarily mean that the individual’s abode is in the United States.
Non U.S. Citizens and Legal Permanent Residents
Non-U.S. persons have different “residency” requirements under SFOP. While they do not have to meet the 330-day test, they do have a different requirement.
The non-U.S. person must show that in one of the three (3) applicable years, they did not meet the Substantial Presence Test, under IRC section 7701(b)(3).
As provided by the IRS:
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.
B. Non-Willful Conduct
The comparison of willful vs. non-willful is complex.In order to qualify for the streamlined foreign offshore procedures, the applicant must qualify as non-willful, using a totality of the circumstances approach.
How to Submit to Streamlined Foreign Offshore Procedures
The instructions concerning the streamline domestic offshore procedures as provided by the IRS are very dense.
We want to break it down for you into bite-sized pieces:
3-Years of Tax Returns
In order to qualify for the program, a person must submit three (3) properly amended or original tax returns. Even with this relative my straightforward requirement, there is a bit of a nuance for current year filers
For example, let’s say someone already filed their 2019 tax return, in April 2020.
-In late 2020 (2019 tax returns are filed in 2020), the person realizes they did not comply with foreign requirements.
-The 2020 tax return (which is not available until 2021) cannot be filed yet, and so the taxpayer amends tax years 2017, 2018 and 2019.
-If instead, let’s say the taxpayer does not find out that they are out of compliance until early 2021.
-The 2020 tax return is now coming due soon. Therefore, the person may be able to submit and original 2020 tax return, along with an amended 2018 in 2019 return.
*There are various complexities involving willfulness and timing, and you may consider speaking to a streamlined disclosure lawyer specialist before making any representation when determining your strategy.
International Information Returns
In addition to filing tax returns. a person may also have to file international information returns for the three-year compliance-period.
Some of the more common International information returns includeFormS:
6-Years of FBAR Filing
The FBAR is technically referred to as FinCEN Form 114. The form has been around for nearly 50 years – it is not new.
FATCA is a separate requirement that only came into existence for individual filers back in 2011. The forms are similar, but different – and not mutually exclusive.
The IRS requires that you electronically submit six (6) years of FBAR in accordance with the requirements of the streamlined domestic offshore procedures.
Title 26 Miscellaneous Offshore Penalty WAIVED
There is NO FBAR, FATCA or other International Information Return penalty if you successfully submit under the Streamlined Foreign Offshore Procedures.
Is there Ever a Streamlined Foreign Offshore Procedure Penalty?
If the IRS determines that your underlying application was fraudulent and that you were actually willful, you are fair game for additional fines and penalties and even a criminal prosecution as happened to recently to a CPA — who was indicted.
*It should be noted that if the agent determines they were inaccuracies in the underlying submission in the agent has the authority to resolve those inaccuracies, such as if the amount of tax was inaccurate.
We Specialize in Streamlined & Offshore Voluntary Disclosure
Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Our lead attorney is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about our Firm?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
We specialize in FBAR and FATCA. Contact our firm today for assistance with getting compliant.