It’s critical to comprehend the tax repercussions of possessing overseas financial assets. Several initiatives have been established by the US Internal Revenue Service (IRS) to help taxpayers comply with their reporting obligations. The Streamlined Domestic Offshore Procedures is one such scheme (SDOP). What you need to know about the SDOP is as follows:
What Are Streamlined Domestic Offshore Procedures?
The IRS offers the SDOP program as a means of helping taxpayers who have been negligently failing to declare their overseas financial holdings to become compliant. It is open to US citizens and residents who have neglected to submit Forms 8938, Report of Foreign Financial Accounts, or Foreign Bank Account Reports (FBARs), as well as other requirements.
Eligibility for the Program
To be eligible for the SDOP, a taxpayer must meet the following criteria:
- Be a US citizen or resident;
- Have failed to file FBARs and/or Form 8938 for one or more years;
- Have previously filed a US tax return (if required to do so);
- Have a valid taxpayer identification number (TIN); and
- Not currently under examination or criminal investigation by the IRS.
Benefits of the Program
The benefits of the SDOP are manifold. First, the program allows eligible taxpayers to come into compliance with their reporting requirements without facing penalties. Second, it allows for a reduced amount of back taxes to be paid. Third, it eliminates the risk of criminal prosecution for failure to report foreign financial assets. Finally, it allows eligible taxpayers to avoid the stress and expense of an IRS audit.
Requirements of the Program
To participate in the SDOP, a taxpayer must do the following:
- File amended tax returns for the three most recent tax years for which the deadline has passed;
- File delinquent FBARs for the six most recent years for which the deadline has passed;
- Certify under penalty of perjury that the failure to file was due to non-willful conduct; and
- Pay any back taxes and interest due, but at a reduced rate compared to the regular penalty amount.
Penalty for Non-compliance
The penalty for failing to comply with the reporting requirements for foreign financial assets can be steep. The penalties can range from $10,000 to $100,000 per violation. In addition, the IRS can pursue criminal prosecution for willful failure to report foreign financial assets. The SDOP allows eligible taxpayers to avoid these penalties and potential criminal prosecution.
Getting Started
To get started with the SDOP, a taxpayer should consult with a tax professional who has experience with offshore tax compliance issues. The tax professional can help the taxpayer determine if they are eligible for the program, assist with the preparation of the necessary paperwork, and guide the taxpayer through the process.
Timing Is Important
It’s important to note that the SDOP is only available for a limited time. As of the date of this post, the program is still available, but the IRS could decide to end the program at any time. If you are considering the SDOP, it’s important to act quickly to avoid missing out on the program’s benefits.
SDOP Does not Apply to All Tax Issues
It’s important to note that the SDOP only applies to certain types of tax issues related to foreign financial assets. The program does not cover other tax issues, such as failure to report income or failure to pay taxes. If you have other tax issues, you may need to explore other options for coming into compliance.
Future Compliance Matters
Finally, it’s important to remember that participating in the SDOP is just the first step in coming into compliance with your reporting requirements. Going forward, you will need to ensure that you continue to comply with the reporting requirements for foreign financial assets. This may require you to work with a tax professional or make changes to the way you manage your foreign financial assets.
The Streamlined Domestic Offshore Procedures is a program offered by the IRS to allow taxpayers to come into compliance with their reporting requirements for foreign financial assets. The program provides significant benefits, including penalty abatement and reduced back taxes. To take advantage of the program, a taxpayer must meet certain eligibility requirements and file the necessary paperwork. If you have foreign financial assets and are unsure of your reporting requirements, it is necessary to consult a tax professional who can help guide you through the process and determine if the SDOP is the right option for you. Taking steps to comply with your reporting requirements can give you peace of mind and protect you from potential penalties and criminal prosecution.