If you have late FBAR filings or unreported foreign income, and you live outside the United States, the IRS Streamlined Foreign Offshore Procedures (SFOP) can help you come into compliance without penalties!
Many U.S. taxpayers who live abroad don’t realize they still need to file U.S. tax returns and report foreign income. Plus, the FBAR is a common (but little-known) form that you may need to file if you have foreign accounts totaling $10,000 at any point in the tax year. If you recently became aware of these filing requirements and you’re wondering how to get back on track, you’re not alone.
The tax attorneys at Gordon Law have years of experience in this niche area of tax law, and we’ve guided countless clients through IRS Streamlined Foreign Offshore Procedures. Read on to see who qualifies and how to submit a successful application!
What Are IRS Streamlined Foreign Offshore Procedures (SFOP)?
Streamlined Foreign Offshore Procedures (SFOP) are an IRS amnesty program for delinquent offshore filers. Unlike other streamlined filing compliance procedures, SFOP is specifically for expats, non-U.S. residents, and “accidental Americans.”
Many people living abroad don’t realize they still need to file U.S. tax returns and report their foreign income. Plus, many taxpayers may be required to file offshore disclosure forms alongside their tax returns each year. These include, but are not limited to:
- FinCEN Form 114 (FBAR)
- Form 8938 (FATCA)
- Form 3520 for offshore gifts and trusts
- Form 5471 for foreign corporations
- Form 8858 for foreign disregarded entities
- Form 8865 for foreign partnerships
SFOP is a type of streamlined compliance procedure that allows non-U.S. residents to correct unreported foreign income, as well as correcting past mistakes with international tax forms like the FBAR.
Benefits of Streamlined Foreign Offshore Procedures
When using Streamlined Foreign Offshore Procedures correctly, you’ll get complete amnesty from IRS penalties for unreported foreign income and penalties for failure to file the FBAR!
- No IRS Penalties: Under SFOP, you won’t have to pay the typical penalties for late filing, underreporting, or late payment of tax. However, you will still have to pay any outstanding tax due, along with interest.
- The failure-to-pay penalty is typically 0.5% of the underpaid tax, while the failure-to-file penalty is 5%. Each of these IRS penalties accrues monthly and can reach up to 25% of the outstanding tax balance.
- The IRS accuracy-related penalty for underreporting is 20% of the outstanding balance.
- No FBAR Penalties: Under SFOP, you get complete amnesty from the steep penalties that arise from failure to file offshore disclosure forms.
- Typically, the penalty for FBAR non-filing is $10,000 per tax year for non-willful violations. For willful violations, the penalty is $100,000 or 50% of your highest account value—whichever is higher. Willful violations can also lead to criminal charges.
- Other offshore disclosure forms, such as FATCA and Form 3520, carry similarly high penalties for non-filing or underreporting.
- Get Squared Away: SFOP allows qualifying, non-willful taxpayers to come into compliance with U.S. tax laws without fear of criminal charges.
SFOP is more favorable than its counterpart for U.S. residents, the Streamlined Domestic Offshore Procedures.
Who is eligible for Streamlined Foreign Offshore Procedures?
The first step of using the Streamlined Foreign Offshore Procedures is to learn whether you qualify. SFOP eligibility requirements include:
- Unreported Offshore Income: SFOP is only for taxpayers with unreported offshore income, such as income from bank accounts overseas. There are many information returns that taxpayers may be required to file, the most common being FinCEN Form 114 (FBAR), Form 8938 (FATCA), and Form 3520. You may use IRS streamlined filing if you didn’t file these forms at all, or if you filed incomplete forms.
- Non-Residency: To qualify for Streamlined Foreign Offshore Procedures, a taxpayer must not be a U.S. resident. Under IRS guidelines, there are 2 non-residency tests that could apply, depending on citizenship status:
- S. Citizens and Permanent Residents (Green Card Holders): During at least 1 of the past 3 years, the taxpayer did not have an abode in the United States and was not physically present in the United States for at least 330 days of the year. The days do not have to be consecutive.
- Non-Resident Aliens: If you are not a U.S. citizen, legal resident, or green card holder, then the non-residence test is more complex. In this case, the taxpayer must not pass the Substantial Presence Test under IRC Section 7701(b). The formula for this test is a little tricky, so contact our team if you need help.
- No Audits or Investigations: The taxpayer must not already be subject to an IRS audit or investigation, even if the issue is not related to foreign accounts. Taxpayers whose information was provided to the IRS in a “John Doe” summons are also ineligible for SFOP.
- Non-Willfulness: Non-willfulness is a key requirement of any streamlined filing application. To use the SFOP, you must submit a Non-Willful Certification (Form 14653) under penalty of perjury. Submitting a false statement carries severe legal consequences. If you have any concerns about willful noncompliance, consider using the Voluntary Disclosure Program (OVDP) instead.
Not sure whether you qualify? Reach out to our experienced streamlined filing attorneys for a consultation! We’ll make sure you understand your options and the next steps.
How to apply for Streamlined Foreign Offshore Procedures
The application for Streamlined Foreign Offshore Procedures (SFOP) includes:
- IRS Form 14653
- Up to 6 years of amended FBAR forms
- 3 years of original or amended tax returns
- Non-willfulness statement
Let’s break down each of these items.
File Form 14653
IRS Form 14653, “Certification by U.S. Person Residing Outside of the U.S.,” certifies that:
- A taxpayer qualifies for Streamlined Foreign Offshore Procedures.
- All required FBAR forms, tax returns, and information returns have now been filed.
- The taxpayer was non-willful. (Learn more about crafting your non-willfulness statement below.)
If Form 14563 is missing or incomplete, the delinquent FBARs and tax returns will be processed without the lenient terms offered by SFOP.
Up to 6 Years of Amended FBARs
The FBAR (FinCEN Form 114) reports certain foreign accounts and assets held by U.S. taxpayers. If those assets totaled $10,000 or more at any time in the year, then an FBAR must be filed for that tax year. The Streamlined Foreign Offshore Procedures application includes up to 6 years of required FBAR filings.
Clients often run into problems trying to track down 6 years’ worth of records from their offshore banks and other accounts. Our attorneys have years of experience with IRS streamlined procedures, so we can help you in this process.
3 Years of Tax Returns
Under SFOP, you must submit tax returns for the past 3 years (original or amended) that include all international income. You must also submit any information returns that should have been filed in the past 3 years, such as:
You must pay any overdue tax and interest resulting from your foreign income. However, with a successful SFOP application, there are no penalties to pay for late filing or underpayment!
Non-Willfulness Statement
The non-willfulness statement explains your situation and why the required forms were not previously filed. The statement should demonstrate a good faith misunderstanding of the requirement.
This is an essential piece of your SFOP application and must be entirely truthful. It’s important to be clear and concise, without overexplaining yourself.
Need help with your non-willfulness statement? Our experienced team has processed more than 100 streamlined disclosure applications, so we know exactly what the IRS is looking for and what you should avoid. Get in touch to learn about professional streamlined filing services.
Do you need an attorney for SFOP and Form 16543?
It is possible to file Form 16543 and apply for SFOP on your own. However, by hiring a professional who’s experienced with delinquent FBARs, you can save yourself a lot of time, uncertainty, and worry.
The Streamlined Foreign Offshore Procedures involve strict requirements and complex calculations, and any mistakes could cause the IRS to reject your application.
The streamlined attorneys at Gordon Law have more than 10 years of experience in this area, and we’ve guided clients through hundreds of successful streamlined applications. We charge a flat fee for Streamlined Foreign Offshore Procedures. This includes meticulous preparation of all the required forms, plus a thorough review of your eligibility.
Avoid mistakes with streamlined filing: Gordon Law can guide you through
At Gordon Law, we’ve helped more than 100 people like you navigate streamlined filing since the program started in 2012. Not only do our experienced FBAR attorneys complete all the paperwork for you, but we take the time to fully explain your options and answer all your questions throughout the process.
With Gordon Law, you can apply for SFOP with the utmost confidence! Call (847) 580-1279 today to get started.
