Form 14654 and the Streamlined Offshore Program

There are two directions for the IRS streamlined program. These are the SFOP (Streamlined Foreign Offshore Program) and the SDOP (Streamlined Domestic Offshore Program). Both the SFOP and SDOP has the following benefits: amnesty from FBAR penalties, accuracy-related penalties, and failure to file penalties.

Differences between the SFOP and SDOP

The differences between the two lies in their requirements. For the SFOP, the taxpayer has to meet the non-residency requirement. This requirement is not related to the following: citizenship, filing of 1040 or 1040NR, and the physical presence test. Those who qualify for the SFOP must be outside the United States for at least 35 days in 1 of the last three years. The SFOP is a more lenient program between the two, although both programs require 6 FBARs and three tax returns.

If unable to fulfill the required number of days outside of the U.S., the person can only file under the DSOP. One advantage of the SFOP over the other is that it offers full amnesty from having penalties.

The Streamlined Domestic Offshore Program is the less lenient program between the two. SDOP requires a taxpayer to comply with a payment of 5% of the taxpayer’s combined year-end financial assets

Non-residency requirement applicable to individuals who are U.S. citizens or lawful permanent residents (i.e., “green card holders”):

Individual U.S. citizens or lawful permanent residents, or estates of U.S. citizens or lawful permanent residents, meet the applicable non-residency requirement if, in any one or more of the most recent three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the individual did not have a U.S. abode and the individual was physically outside the United States for at least 330 full days.  Under IRC section 911 and its regulations, which apply for purposes of these procedures, neither temporary presence of the individual in the United States nor maintenance of a dwelling in the United States by an individual necessarily mean that the individual’s abode is in the United States.

Non-residency requirement applicable to individuals who are not U.S. citizens or lawful permanent residents:  

Individuals who are not U.S. citizens or lawful permanent residents, or estates of individuals who were not U.S. citizens or lawful permanent residents, meet the applicable non-residency requirement if, in any one or more of the last three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, the individual did not meet the substantial presence test of IRC section 7701(b)(3).

Foreign Financial Assets Inclusion
The following are considered as foreign financial assets:

–    International mutual funds

–    Foreign stock or securities not held in a financial account

–    Financial accounts held at foreign financial institutions

–    Financial statements held at a foreign branch of a U.S. financial institution

–    Foreign hedge funds and international private equity funds

Calculating the Highest Aggregate Balance

  1. Find the foreign financial assets for generally six years or the years in question when filing FBAR (FinCEN 114) or FATCA (Form 8938) was neglected.
  2. Combine all year-end asset values of all questionable foreign financial assets.
  3. Choose the highest value for each.
  4. Get the sum of the accounts, then multiply by 5%.

If the gross income for the asset was not reported, such account is part of the calculation. An example would be an investment account that was reported, but the interest gains were not.

Significance of Filing DSOP

There are several advantages to filing DSOP. First, it provides an amnesty from several severe penalties like accuracy-related penalties, FBAR penalties, and “failure to file” penalties. DSOP also carries a 5% penalty risk. The program also limits only to 3 years without filing through any of the two programs.

Other Required Forms
DSOP requires the filing of the following forms: three most recent tax returns, any informational returns, and six most recent FBAR reports. A certification through Form 14654 is also needed. Form 14654 should indicate that the non-filing was unintentional.

Thank You for Uploading a File.