The Streamlined Foreign Offshore Procedures (SFOP) were created by the IRS to encourage US taxpayers living outside the US to become current with their US tax filing obligations. The US is one of the few countries in the world imposing taxes based on citizenship instead of residency. Many US taxpayers living abroad did not know they had US tax filing obligations, until the enactment of Foreign Account Tax Compliance Act (FATCA). The SFOP is a good program and should be considered for those that qualify. As an initial matter, none of the programs, including the SFOP, are available for a US taxpayer that is already under examination by the IRS for years that are subject to the program.
Assuming the US taxpayer is not under examination by the IRS, to qualify for the SFOP, a US taxpayer “must 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 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.” In addition, the US taxpayer must have unreported gross income from foreign financial assets. A US taxpayer that reported all of their foreign income on their US tax return but failed to file an FBAR does not need to enter the SFOP. To enter the SFOP a US taxpayer must also have a TIN or SSN. For US taxpayers born abroad or born in the US before 1990, no SSN may ever have been assigned. US taxpayers with SSN’s must apply for and receive SSN’s from the Social Security Administration before entering the SFOP.
Finally, the US taxpayer must certify, under penalties of perjury, that their failure to report their foreign income was not willful and provide an explanation of why they did not report the foreign income.
Flott & Co. PC has guided numerous clients through the SFOP process and the benefits are significant. First, under the SFOP all FBAR penalties are waived. Second, all income tax penalties are waived. Under the SFOP US taxpayers are only obligated to pay any US taxes and interest due for the past three years and interest.
The SFOP is by far the most generous of the current IRS programs. However, the IRS has stated that the SFOP will close, just like the Offshore Voluntary Disclosure Program, but has given no date. As such, it is important to US taxpayers with undisclosed foreign accounts or income to resolve their tax matters sooner rather than later. To learn more, visit our affiliated blog: www.doingbusinessacrossborders.com