If you are trying to come into compliance with the IRS (Internal Revenue Service) for your foreign assets, you have multiple options to do so. If you reside within the United States, you could take advantage of one of these programs after consulting with a diligent offshore disclosure attorney. To learn whether this is the right program for you, a Washington DC streamlined domestic offshore procedure lawyer will need more information about your tax history.

What is the SDOP?

The streamlined domestic offshore procedures (SDOP) are for taxpayers who have not reported their foreign accounts on FBARs or other international informational forms, such as Form 8938 (statement of specified foreign assets) or Form 3520 (the receipt of foreign gifts and trusts), or who did not file an FBAR at all. It is a way for the taxpayer to come into compliance with only a 5% penalty. This program is for taxpayers who are living within the United States, while the foreign type of streamlined disclosure is for taxpayers living outside of the United States.

Years Required to Submit

Under the streamlined domestic offshore procedures, taxpayers are going to be required to file three years of amended returns and six years of FBARs. This differs from the foreign streamlined where they do not have to have already been in compliance with their 1040s. If they have not filed a U.S. tax return in the previous three years, they can be disqualified from the program. The 5% penalty is based upon the highest aggregate account value in one of the six years during the lookback period.

Taxpayers Who Can Use This Program

There are multiple programs that a local streamlined domestic offshore procedure attorney could suggest to get a taxpayer into compliance. To use the SDOP program, the taxpayer must meet certain requirements:

  • They must be living within the country.
  • They must have previously filed a U.S. tax return for the most recent three years in which the due date has passed.
  • They failed to report gross income from a foreign financial asset and pay the related tax under U.S. tax law; or they failed to file an FBAR and/or any other international information forms, like Forms 3520, 3520(a), 5471, 5472, 8938, 926 or 8621 with respect to foreign financial assets.
  • These failures resulted from non-willful conduct.

A person who is lower risk would be someone who has small foreign accounts and relatively little unreported income. Individuals who are high risk are those with larger accounts and foreign income to be disclosed. Those who have not filed their 1040s are not going to be eligible for the program and they would be in a riskier penalty situation.

What Happens if the IRS Rejects a Streamlined Domestic Filing?

If the IRS rejects the streamlined disclosure, it typically means that they determined the taxpayer was ineligible. Perhaps the taxpayer did not file a recent year’s return or the IRS denied the self-determination that they were non-willful.

When a person is deemed ineligible for the streamlined disclosure, they are going to get stuck with much higher penalties. The international penalties would all be in play and there might potentially be an audit examination of those disclosure documents. Although the official rules for SDOP do not mention reapplication, taxpayers have historically been deemed ineligible to reapply.

The Costs of Using the SDOP

A person who discloses through SDOP would have to pay their unpaid back taxes for the previous three years plus interest, as well as a 5% penalty on the highest account balance of the previous six years in which the FBAR is going to be filed. They may have to liquidate some of the money in their accounts in order to meet these payments. If they believe they are unable to make these payments, a local SDOP attorney would have to evaluate whether this is the right program for them to come forward.

Seek Help from a Washington DC Streamlined Domestic Offshore Procedure Attorney

The IRS provides avenues for you to come into tax compliance without major ramifications. If you fit the criteria, you could take advantage of this with the help of a Washington DC streamlined domestic offshore procedure lawyer. Call us for more information.

Attorney John Pontius

Pontius Tax Law, PLLC is a tax law firm that strives to resolve sensitive tax problems through trust, dedication and value. The law firm was founded by John Pontius with offices in Washington, DC,  Rockville, MD, Bethesda, MD, Fairfax, VA, and Alexandria, VA. Mr. Pontius represents individual and business clients with sensitive and serious tax matters before the Internal Revenue Service and state taxing authorities. His client base is local, national, and international.

Over the course of his career, Mr. Pontius has represented businesses and individuals with complex tax issues in the following areas: FBAR examinations, offshore and domestic disclosures, FATCA, FIRPTA, tax planning, unfiled tax returns, release of tax liens and levies, trust fund recovery penalty, IRS and state audit examinations, as well as appeals, penalty abatement, U.S. Tax Court litigation, along with defense of tax fraud and evasion. If you require assistance from a tax lawyer, contact Mr. Pontius to discuss your situation.

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