What is streamlined foreign offshore procedures(SFOP)

Streamlined Foreign Offshore Procedures (SFOP) is a special amnesty program by IRA targeting delinquent offshore filers and “accidental Americans.”

It’s a type of streamlined compliance procedure to report undeclared foreign income. Taxpayers can file(original or amend prior returns) and correct other offshore declaration forms without attracting fines and penalties.

IRA requires All U.S. persons (including U.S. Citizens, Resident Aliens, and green card holders) to file Form 1040 and other offshore declaration forms every tax year. This is to be done regardless of their source of income, availability of income, or tax jurisdiction.

The deadline for filing Form 1040 is by April 15th of the succeeding year (June 15th for taxpayers living abroad). Some non-resident aliens with U.S. income may also be required to file Form 1040 or a 1040NR should they meet the filing requirements.

 What are offshore declaration forms?

Major forms that are usually attached to Form 1040 include:

• 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

 Who qualifies for SFOP?

• Taxpayer Status

This includes U.S. citizens, Green Card holders, and U.S. persons for tax purposes who have not made any treaty elections to be treated as a Non-Resident Alien (NRA) or a U.S. tax resident (under the substantial presence test).

• Non-Willfulness

Taxpayers can demonstrate that Non-disclosure or non-filing was not willful. Non-willful conduct can be due to negligence, inadvertence, or mistake, or is the result of a good faith misunderstanding of the requirements.

• Foreign Residency

1. U.S. citizens or lawful permanent residents: Who were out of US territories for at least 330 full days during any one of the 3 most recent tax years for which the due date (or properly extended due date) has passed.
2. For non-resident aliens or dual-status aliens: Not a U.S. abode at any time during the relevant tax

• Ineligibility for Other Programs

Only applies If you are not under civil examination by the IRS or have been contacted by the IRS regarding your noncompliance. Additionally, SFPO is also not available if the taxpayer has already submitted a voluntary disclosure under the IRS’s Offshore Voluntary Disclosure Program (OVDP)

 How do you get back into compliance?

1. Filing the missing Unfiled or Amended Returns

File at least three delinquent or amended federal tax returns (Forms 1040) for the most recent years that are due on the deadline (or extended due date) including all required information returns (e.g., Forms 8938, 3520, 5471, 8621).

Additionally, file the last 6 delinquent FBARs (FinCEN Form 114) for the last 6 years. Form 114 should only be filed for years after the $10,000 threshold is met.

• Under a Treasury Decision issued in 1993, Non-filers with no tax to declare can file for as many years back as possible Delinquent taxpayers need to write on top of each Form 1040 “FILED PURSUANT TO SEC. 1.911-7(a)(2)(i)(D) or simply make an election to file as “Streamlined Foreign Offshore”

• Non-filers with taxes to pay can only take advantage as long as they are not under IRS probe or investigation. It’s only allowed for any year that the IRS has not discovered the delinquency. This is filed by writing on top of each Form 1040 “FILED PURSUANT TO SEC. 1.911-7(a)(2)(i)(D) or simply make an election to file as “Streamlined Foreign Offshore”. U.S. taxes owed need to be calculated and offset against any Foreign tax credits or the Foreign Earned Income Exclusion (FEIE), assuming you met the foreign residency requirement.
• The balance needs to be paid in full or the taxpayer will need to Form 9465 to request an installment payment plan. Remember, interest and penalties apply on this undeclared income, however, the IRS may in certain circumstances waive these charges if given compelling reasons for the delinquency or prove non-willful failure.

2. Certify that conduct was non-willful

The taxpayer must complete and certify Form 14653 (Certification by U.S. Person Residing Outside of the U.S.) certifying that non-compliance was non-willful.

 IRS usually looks for the following;

• Was the taxpayer previously filing but later stopped?
• Is there a pattern or is it a one-time mistake?
• Has the taxpayer taken steps to avoid detection?

 Bottom Line

• All U.S. persons are under obligation to file Form 1040 and other offshore declaration forms every tax year regardless of whether they reside within the U.S. or not or whether they earned any non-U.S. income or not.
• Streamlined Foreign Offshore Procedures(SFOP) allow’s a taxpayer to get out of delinquency without paying any Title 26 miscellaneous offshore penalty (easily circumvent FBAR penalties and Form 8938 Penalties.).
• There is no statute of limitations on the filing of taxes. This simply means a U.S. person is open to future investigations despite the passage of time as the tax year has not been closed. The statute of limitation is only applicable once a return has been submitted.
• IRS can impose significant fines for delinquency. They may even pursue civil or criminal penalties if non-filing is considered willful. Interest will continue to pile on any unpaid tax balances.
• It’s a crime not to file A US tax person not to file a tax return if it will result in taxes. By contrast, there is no penalty for filing a return, and not being in a position to pay the taxes. However, this unpaid tax will accrue interest and penalties, but you can’t be sent to jail.