IRS Has Updated FAQs for SFOP and SDOP Streamlined Processes!

January 15, 2016

The US Internal Revenue Service has updated its guidance on its Streamlined Procedures for Voluntary Disclosure of Offshore Assets. The main changes relate to taxpayers' certification of their Non-Wilfulness and the treatment of joint returns requiring amendment where the other spouse does not desire to cooperate.

1. IRS Has Provided Some Detail Regarding the Supportive Narratives for the Form(s) 14653 & 14654 Certification of Non-Willfulness. (SFOP FAQ #6 - SDOP FAQ #13)

Taxpayers using either the Streamlined Foreign Offshore Procedures (SFOP) or the Streamlined Domestic Offshore Procedures (SDOP), will be required to certify, in accordance with the specific instructions set forth below, that the failure to report all income, pay all tax and submit all required information returns, including FBARs (FinCEN Form 114, previously Form TD F 90-22,1) was due to non-willful conduct. The IRS on numerous occasions has indicated that they were getting narratives that did not contain enough detail to support the taxpayers' certifications of Non-Willfulness.

New SFOP FAQ #6

Q6.

What facts do I need to include in completing the narrative statement of facts portion of the Form 14653?

Provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Include the whole story including favorable and unfavorable facts. Specific reasons, whether favorable or unfavorable to you, should include your personal background, financial background, and anything else you believe is relevant to your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Additionally, explain the source of funds in all of your foreign financial accounts/assets. For example, explain whether you inherited the account/asset, whether you opened it while residing in a foreign country, or whether you had a business reason to open or use it. And explain your contacts with the account/asset including withdrawals, deposits, and investment/management decisions. Provide a complete story about your foreign financial account/asset.

The following points address common situations that may apply to you:

We realize that many taxpayers failed to acknowledge their financial interest in or signature authority over foreign financial accounts on Form 1040, Schedule B. If you (or your return preparer) inadvertently checked “no” on Schedule B, line 7a, simply provide your explanation.
We realize that some taxpayers that owned or controlled a foreign entity (e.g., corporation, trust, partnership, IBC, etc.) failed to properly report ownership of the entity or transactions with the foreign entity. If you (or your return preparer) inadvertently failed to report ownership or control of the foreign entity or transactions with the foreign entity, explain why and include your understanding of your reporting obligations to the IRS and to foreign jurisdictions.
If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice. Also provide background such as how you came into contact with the advisor and frequency of communication with the advisor.
If married taxpayers submitting a joint certification have different reasons, provide the individual reasons for each spouse separately in the statement of facts.

New SDOP FAQ #13

Q13

What facts do I need to include in completing the narrative statement of facts portion of the Form 14654?

The following points address common situations that may apply to you:

· We realize that many taxpayers failed to acknowledge their financial interest in or signature authority over foreign financial accounts on Form 1040, Schedule B. If you (or your return preparer) inadvertently checked “no” on Schedule B, line 7a, simply provide your explanation.

· We realize that some taxpayers that owned or controlled a foreign entity (e.g., corporation, trust, partnership, IBC, etc.) failed to properly report ownership of the entity or transactions with the foreign entity. If you (or your return preparer) inadvertently failed to report ownership or control of the foreign entity or transactions with the foreign entity, explain why and include your understanding of your reporting obligations to the IRS and to foreign jurisdictions.

· If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice. Also provide background such as how you came into contact with the advisor and frequency of communication with the advisor.

· If married taxpayers submitting a joint certification have different reasons, provide the individual reasons for each spouse separately in the statement of facts.

2. IRS Also Provides Advice Regarding the Treatment of Joint Returns Requiring Amendment Where the Other Spouse does not Desire to Cooperate. (SFOP FAQ #7 - SDOP FAQ #14.)

SFOP FAQ #7

Q7.

In one or more of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed, I filed joint income tax returns. But my spouse/former spouse will not sign joint amended returns or a joint certification on Form 14653 for a Streamlined submission. What can I do? Am I precluded from using the Streamlined Foreign Offshore Procedures?

We understand that in certain cases (including but not limited to separation or divorce), your spouse/former spouse may not be willing to sign joint amended income tax returns or a joint certification on Form 14653.

You may submit a joint amended income tax return with only your signature to Streamlined Foreign Offshore Procedures so long as your joint amended return shows a net increase in tax. Please explain your inability to secure your spouse’s/former spouse’s signature in the narrative statement of facts on Form 14653. And write “SFO FAQ 7” in red ink in the area for your spouse’s signature on the amended returns and Form 14653.

As a matter of routine processing, the Service will request the other spouse’s signature on joint amended returns with only one signature. If at the time the Service makes a request for your spouse’s/former spouse’s signature on a joint amended return or joint certification you are still unable to secure your spouse’s/former spouse’s signature, please respond to the inquiry by referencing this FAQ.

You may not submit a joint amended income tax return with only your signature to Streamlined Foreign Offshore Procedures showing a net decrease in tax or an increase in credit.

SDOP FAQ #14

Q14 In one or more of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed, I filed joint income tax returns. But my spouse/former spouse will not sign joint amended returns or a joint certification on Form 14654 for a Streamlined submission. What can I do? Am I precluded from using the Streamlined Domestic Offshore Procedures?

You may submit a joint amended income tax return with only your signature to Streamlined Domestic Offshore Procedures so long as your joint amended return shows a net increase in tax. Please explain your inability to secure your spouse’s/former spouse’s signature in the narrative statement of facts on Form 14654. And write “SDO FAQ 14” in red ink in the area for your spouse’s signature on the amended returns and Form 14654.

You may not submit a joint amended income tax return with only your signature to Streamlined Domestic Offshore Procedures showing a net decrease in tax or an increase in credit.

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IRS Has Updated FAQs for SFOP and SDOP Streamlined Processes!