- 1 Streamlined Foreign Offshore Procedures (SFOP)
- 2 Krantz Attorneys Streamlined Foreign Offshore Lawyers – Board-Certified Tax Law Specialist Team
- 3 How To Qualify for Streamlined Foreign Offshore Procedures
- 4 Step 1: Are You Willful or Non-Willful?
- 5 Lower Thresholds of Willfulness
- 6 Step 2: Are You a Foreign Resident?
- 7 Step 3: Preparing Your Streamlined Application
- 8 What Forms Must be Reported?
- 9 Streamlined Foreign Offshore Instructions
- 10 Streamlined Foreign Offshore Procedures 2018 (or 2019) Ending?
- 11 Interested in the Streamlined Foreign Offshore Procedures?
Streamlined Foreign Offshore Procedures (2019) – How Do I Qualify?
Streamlined Foreign Offshore Procedures: In order to provide some better context about the IRS Streamlined Disclosure Program for Foreign Residents, it is important to understand what the term Streamlined Foreign Offshore Procedures (SFOP) means. SFOP is also referred to as:
- Streamlined Foreign Offshore
- Streamlined Foreign Procedures
- Offshore Streamlined Filing
- Streamlined Expat
- IRS Amnesty for Expats
- Streamlined Foreign Disclosure
Streamlined Foreign Offshore Procedures (SFOP)
Streamlined Foreign Offshore Procedures or (SFOP) are a highly cost-effective method of quickly getting you into IRS (Internal Revenue Service) or DOT (Department of Treasury) compliance before it is too late! It allows individuals to come into IRS Tax and Reporting Compliance, without having to pay any penalties.
Krantz Attorneys Streamlined Foreign Offshore Lawyers – Board-Certified Tax Law Specialist Team
Krantz Attorneys represents clients worldwide in over 70-countries exclusively in Streamlined, Offshore and IRS Voluntary Disclosure matters. We have successfully completed more than 1,000 streamlined and voluntary disclosure submissions.
- Learn more about the Board-Certified Tax Law Specialist credential
- Learn more about the IRS Enrolled Agent credential
- Learn More about Krantz Attorneys’s Case Accomplishments
- Learn More about Krantz Attorneys Testimonials from prior clients
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants and Financial Professionals worldwide.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Ezra Krantz is one of less than 400 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
How To Qualify for Streamlined Foreign Offshore Procedures
In order to qualify for Streamlined Foreign Offshore Procedures, you must meet two major requirements:
- Qualify as Non-Willful;
- Meet the 330-Day Foreign Residence Test/Non U.S. Person; and
- You do not have to have filed all prior year tax returns.
Step 1: Are You Willful or Non-Willful?
There is no bright-line test to determine willfulness.
It is a ‘Totality of the Circumstances‘ test based on whether or not your specific facts and circumstances reflect that you knew, or should have known that you were required to disclose and report your foreign accounts and offshore income — and made the decision not to disclose.
Generally, if a person was unaware that there was a foreign account/foreign income/foreign asset reporting requirement, the client begins in the “non-willful” category, but more analysis is needed.
Factors to Consider when Analyzing “Willful vs. Non-Willful”
- What is your U.S. status?
- How long have you been in the United States for?
- How many years have you filed U.S. tax returns?
- What types of investments do you have overseas?
- Do you utilize a financial planner?
- Do you have a CPA or EA?
- Is your CPA or EA experienced in international tax?
- Did your CPA or EA send you questions in writing asking about Foreign Accounts or Income?
- Did you respond truthful to the CPA or EA?
- Did you complete a schedule B?
- Are you tax compliant in the country in which the accounts are maintained?
- Did you have unreported income as well?
Lower Thresholds of Willfulness
Willfulness is more than just “intentionally” committing an act.
There can be “lower” forms of willfulness, which do not require willful or intent — these additional willful standard are referred to as:
If you have any concern of willful vs. non-willful, It is crucial that you consult with an experienced Streamlined and Offshore Disclosure Lawyer before making any submission.
If I was Only Willful for a Few Years, Can I Go Streamlined?
The IRS is clear: If you were willful at all, then you cannot qualify for the IRS Streamlined Program. There are no exceptions for people who were only willful for a year or two, and no exceptions for people who only failed to report “small” amounts of income.
Unfortunately, some unethical attorneys will still push you into streamlined
On multiple occasions, we have had clients come to us after retaining one of these less-experienced firms, who are now terrified because they realized that they paid an inexperienced Offshore Disclosure Attorney a “small fee” to go streamlined, when they admitted to the Attorney they were willful.
Once you submit to the Streamlined Program, you can not thereafter submit to traditional voluntary disclosure.
Click Here for a Case Study Example of what can occur when you go Streamlined when you were willful.
Step 2: Are You a Foreign Resident?
If you live overseas and qualify as a foreign resident (reside outside of the United States for at least 330 days in any one of the last three (3) tax years or do not meet the Substantial Presence Test in one of the last three (3) tax years) you may obtain a waiver of all FBAR and FATCA penalties.
IRC 911 (Physical Presence Test vs. Bona-Fide Resident Test)
The Streamlined Foreign “330-day rule,” is a hard and fast rule.
Thus, the Streamlined Foreign “330-day rule” should be distinguished from Internal Revenue Code section 911 which is used by taxpayers trying to claim the Foreign Earned Income Exclusion by showing they qualify for either the physical presence test (330 days in any 12-month period) or the bona fide residence test. Thus, even though a person could qualify as a bona fide resident under IRC 911 for the foreign earned income exclusion, it does not mean that they qualify for the streamlined foreign program.
Step 3: Preparing Your Streamlined Application
If you are Non-Willful and qualify as a Foreign Resident, then you should qualify for the Streamlined Offshore Procedures.
The process for getting into compliance is as follows:
Streamlined Foreign Basic Submission Requirements
The Streamlined Program requires the applicant to amend and pay outstanding tax liability for the last three (3) years to include unreported foreign income and unreported foreign accounts that were not previously reported on a U.S Tax Return.
To Summarize the Streamlined Foreign Program:
- Prepar Original Returns (or Amend Returns) for the last 3 years of Tax Returns
- Prepare required forms such as 3520, 3520-A, 5471, 8621, 8938, 8865, etc.
- Complete Form 14653
- File 6 Years of FBAR (FinCEN 114) – Report of Foreign Bank and Financial Accounts
- All Penalties are waived.
What Forms Must be Reported?
The following is a list of common forms which many people were never aware they had to report, but which the failure to report may lead to extensive fines and penalties:
Reporting Foreign Accounts (FBAR)
There is a lot of information online regarding the FBAR (Report of Foreign Bank and Financial Account Form) due to the extremely high penalties involved with this form. We have written countless articles, which you can find in our International Tax Library, by clicking here.
If you are a U.S. Person, it does not matter whether or not you have to file a US tax return to determine if you have to file an FBAR. The threshold question is whether you have an annual aggregate total of foreign/offshore bank accounts, financial accounts, retirement accounts, etc. that when combined, exceed $10,000. If so, you are required to file the FBAR Form and report all of the accounts.
FATCA Form (8938)
FATCA is the Foreign Account Tax Compliance Act. For individuals, it requires reporting of financial accounts and certain specified foreign assets (ownership in businesses, life insurance, etc.). There are different threshold requirements, depending on whether a person is Married Filing Jointly (MFJ) or Married Filing Separate (MFS)/Single, and whether a person resides in the United States or outside of the United States.
Foreign Gift Form (3520)
If you receive a gift or inheritance from a foreign person that exceeds $100,000 either in a single transaction, or a series of transactions over a year, you are required to report the gift on this form. You have the file this form, even if you are not required to file a tax return (although it is normally filed at the same time as your tax return).
Foreign Corporation or Foreign Partnership (5471 or 8865)
The rules are somewhat different for these two forms, but essentially the same (with the 5471 being much more commonplace for U.S. investors). If you own at least 10% ownership in either type of business, you required to report the information on either a form 5471 or 8865. Both of these forms require comprehensive disclosure requirements, involving balance statements, liabilities, assets, etc. Moreover, the forms need to be filed annually, even if a person does not have to otherwise file a tax return
Passive Foreign Investment Company (PFIC)
One of the most vilified type of financial assets/investments (from the U.S. Government’s perspective) is the infamous PFIC. A PFIC is a Passive Foreign Investment Company. The reason the United States penalized this type of investment is because it cannot oversee the growth of the investment and income it generates. In other words, if a U.S. person invests overseas in a Foreign Mutual Fund or Foreign Holding Company — the assets grows and generates income outside of IRS and U.S. Government income rules and regulations.
Foreign Trust (3520-A)
A Foreign Trust is another type of Foreign Investment that is frowned upon by the IRS. From the IRS’ perspective, the only purpose behind a Foreign Trust is to illegally avoid US reporting and income tax requirements by moving money offshore. While there are many people who may operate illegally in this fashion, there are various legitimate reasons why you would be a trustee or beneficiary of a Foreign Trust (Your cool grandma really loves you and placed $5 million in trust for you overseas). Form 3520-A is a relatively complex form, which must be filed annually by anybody that owns a foreign trust.
Foreign Real Estate Income
Even if you are earning rental income from property that is located outside of the United States, you still must report the income on your U.S. taxes (even it is exempt from tax in the foreign country). Remember, United States taxes individuals on their worldwide income. Therefore, the income you are earning from your rental property(s) must also be included on your US tax return.
A few nice benefits of reporting the income is that the United States allows depreciation of the structure – which many foreign countries do not allow. Moreover, you can take the same types of deductions and expenses that you otherwise take the property was located in the United States.
Streamlined Foreign Offshore Instructions
Even though you are non-willful, and you may be tempted to make a direct submission to the IRS, we advise against it. You must sign the Form 14654 under penalty of perjury. We have been referred several “rejected” Streamlined Submissions, because the certification was prepared incorrectly, and the issue of non-willfulness became an issue.
Still, we understand some of you wan to take a crack at it yourselves, and we understand.
Streamlined Foreign Offshore Procedures 2018 (or 2019) Ending?
There is no knowing if the Streamlined Foreign Offshore Procedures Ending date is coming now, or later. BUT, the IRS reserves the right to end the program at any time and has indicated that the program “won’t last forever.”
Interested in the Streamlined Foreign Offshore Procedures?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Krantz Attorneys specializes in Streamlined Foreign Offshore Procedures. Contact our firm today for assistance with getting compliant.
Ezra holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Krantz's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.
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