Streamlined Domestic Offshore Procedures

For

 U.S. Taxpayers Residing Inside the United States

Disclaimer: The following IRS Streamlined Domestic Offshore Procedures material is intended for general information only and not legal or tax advice.

Streamlined Domestic Offshore Procedures (SDOP)

Source: IRS. The following summarizes the Streamlined Domestic Offshore Procedures for taxpayers residing in the U.S.

Who is Eligible for Streamlined Domestic Offshore Procedures?

The Streamlined Domestic Offshore Procedures (SDO) are designed for U.S. taxpayers (including U.S. citizens, green card holders, or those meeting the substantial presence test) who reside in the United States and wish to correct past offshore reporting non-compliance, provided their conduct was non-willful.

To qualify, taxpayers must:

✅ Fail to meet the non-residency requirement (for joint filers, one or both spouses must fail to meet it);
✅ Have filed U.S. tax returns, if required, for the past 3 years for which the due date has passed;
✅ Have failed to report foreign financial assets, income, FBARs, or other international information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, 8621);
✅ Ensure the non-compliance resulted from non-willful conduct, meaning due to negligence, inadvertence, or a good-faith misunderstanding of the law.

What’s Required Per Streamlined Domestic Offshore Procedures?

Eligible taxpayers who fully comply with the SDO instructions benefit from reduced penalties and protection from certain IRS penalties. The key requirements include:

1. Amended Tax Returns

• File amended tax returns (Form 1040X) for the past 3 tax years, including all necessary international information returns (even if not normally attached to the original tax return).
• Write “Streamlined Domestic Offshore” in red at the top of each amended return and attached information return.

2. FBAR Compliance

• File delinquent FBARs (Foreign Bank Account Reports) for the past 6 years, electronically via FinCEN.
• On the electronic FBAR form, select “Other” as the reason for late filing and enter:
  “Streamlined Filing Compliance Procedures.”

3. Certification Statement

• Complete and sign Form 14654 – Certification by U.S. Person Residing in the U.S., certifying:
  • Eligibility for the SDO procedures.
  • All required FBARs are now filed.
  • Non-compliance was non-willful.
  • Offshore penalty calculations are accurate.

The original signed certification must be submitted with your amended returns. Copies go with each tax return but not with FBARs.

4. Payment of Tax, Interest, and Penalties

• Pay all outstanding taxes and interest for the amended returns.
• Pay the Title 26 Miscellaneous Offshore Penalty, calculated as 5% of the highest aggregate balance/value of unreported foreign financial assets during the 3-year tax period and 6-year FBAR period.

Foreign financial assets subject to the penalty include:
✔ Foreign bank or brokerage accounts
✔ Foreign stock or securities held outside financial accounts
✔ Foreign mutual funds, hedge funds, or private equity funds
✔ Foreign retirement or savings accounts (subject to specific rules)

Assets properly reported but with unreported related income are also subject to the penalty.

Relief for Late Deferral Elections (Retirement or Savings Plans)

If you seek to defer income under an applicable treaty for foreign retirement or savings plans:

• Submit a statement requesting late election relief, citing the applicable treaty.
• Provide a signed, dated statement explaining the circumstances of the failure and discovery.
• If applicable, describe any reliance on professional advisors.

Where to Send Your Submission

All required documents, payments, and certifications must be sent via mail to:

Internal Revenue Service
3651 South I-H 35, Stop 6063 AUSC
Attn: Streamlined Domestic Offshore
Austin, TX 78741

Electronic submissions are not accepted. Future filings must follow standard procedures.

Important Considerations

• Taxpayers complying with SDO are generally protected from accuracy-related penalties, information return penalties, and FBAR penalties.
• If the IRS finds fraud or willful violations during examination, penalties may still apply.
• Previously assessed penalties for prior years remain in place.
• Any additional tax deficiencies uncovered by the IRS may result in further penalties.

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