When a person who is subject to United States taxation fails to report their foreign income, they have an opportunity to rectify this by disclosing their assets to the Internal Revenue Service (IRS). If that person resides outside of the U.S., they could accomplish this after consulting with a Washington DC streamlined foreign offshore procedures lawyer. A skilled offshore disclosure attorney could help you enter compliance with the IRS without the fear of penalties.
The difference between the SFOP and the SDOP (Streamlined Domestic Offshore Procedure) is that the SFOP is for a non-resident of the United States. This means they did not meet the substantial presence test, or they have lived outside the U.S. for at least 330 days a year in the most recent three years.
The SFOP also allows individuals who have not filed a 1040 over the last three years to come into compliance. The SDOP does not allow anyone who failed to file 1040s for the previous three years to participate.
One of the benefits of the SFOP is that it has no offshore penalty. There are many U.S. taxpayers who are living abroad and are out of compliance, and this program tries to bring as many of those people into U.S. tax compliance as possible.
The streamlined foreign procedure’s eligibility is limited to non-residents of the U.S. whose failure to file tax returns, information returns, FBARs, et cetera, was based upon non-willful conduct. Taxpayers sometimes misinterpret or misunderstand what is means to be a non-resident. As a result, some believe they are eligible, when in fact they are not. They might not satisfy the 330-days-per-year rule or they might meet the substantial presence test that makes them ineligible for the SFOP. A local streamlined foreign offshore procedure attorney could confirm with someone whether they are considered a non-resident.
The requirements to use SFOP are roughly the same as with the streamlined domestic procedure. In addition, if the taxpayer does not have a social security number or individual tax identification number (ITIN), they must then apply for an ITIN.
For the streamlined foreign offshore procedure, the person would need to bring in their foreign tax returns, income statements for a foreign employer, bank statements from abroad, retirement statements abroad, life insurance abroad, and a travel log showing that they were living outside of the U.S. for more than 330 days per year.
The taxpayer will need to file or refile their 1040 for the last three years, with potentially some international ones like a Form 8938 (Specialized Foreign Account) and Form 2555 (Foreign Earned Income Exclusion)
A United States taxpayer is a term applied to someone who is a U.S. citizen, a visa or green card holder, or someone who lives within the country for long enough to satisfy a substantial presence test, which is generally more than 183 days over several years.
The refiling requirement can come into play when someone’s income exceeds the standard deduction for their marital status situation. To offset this potential double taxation (being taxed in the U.S. as well as a foreign country) the U.S. provides some relief by providing the Foreign Earned Income Exclusion. This excludes taxation for foreign income up to a certain amount, which is adjusted annually to match inflation. The most recent years’ thresholds are available on the IRS website. For any money they make over that threshold, that amount would be subject to taxation. The U.S. also provides a foreign tax credit which a person can claim on their U.S. return.
There is no offshore penalty associated with the SFOP, so they will only need to pay the tax and interest from the unreported foreign income. If, for some reason, the individual is unable to afford even the base tax, they may need to evaluate their situation with a Washington DC SFOP lawyer. In most cases, if they have a foreign account that they have not reported, there is usually money available in that foreign account to pay this tax and interest.
If you are a non-resident who must disclose offshore accounts, give us a call. A Washington DC streamlined foreign offshore procedures lawyer can lend their assistance in this matter.
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, Vienna, 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.