Form 14654 and the Streamlined Offshore Program
There are two camps 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.
In unable to fulfill the required number of days outside of the U.S., the person can only avail of 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
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
- 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.
- Combine all year-end asset values of all questionable foreign financial assets.
- Choose the highest value for each.
- 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. Professional help is necessary when undertaking these tax filing processes.