If you’re a U.S. resident with unreported foreign financial accounts or income, the IRS offers a chance to come into compliance without facing the full force of penalties. It’s called the Streamlined Domestic Offshore Procedures (SDOP).
This program is designed for taxpayers who made honest mistakes—not those who intentionally hid assets. If you qualify, SDOP can help you fix reporting gaps, reduce penalties, and avoid more serious consequences. While some choose to navigate the process on their own, many find it helpful to work with a tax attorney who can ensure everything is filed correctly and completely.
In this guide, we’ll walk you through what SDOP is, who qualifies, how to apply, and what to expect in terms of penalties and outcomes. Whether you’re just learning about FBAR or are already gathering documents, this guide will help you move forward with confidence.
What Are Streamlined Domestic Offshore Procedures?
The Streamlined Domestic Offshore Procedures are part of the IRS’s amnesty initiatives that help U.S. taxpayers correct past failures to report foreign income and assets. SDOP is available only to U.S. residents whose noncompliance was non-willful, meaning the mistake was due to a misunderstanding, oversight, or lack of awareness. It is not available to those who deliberately attempted to evade tax reporting.
Eligible taxpayers can use SDOP to submit missing forms, pay any overdue tax and interest, and settle for a one-time 5% penalty. This allows them to avoid a wide range of civil fines or potential criminal action.
Who Qualifies for SDOP?
To use the Streamlined Domestic Offshore Procedures, you must meet all of the following:
You are a U.S. resident. This includes U.S. citizens, permanent residents (green card holders), or those who meet the substantial presence test. If you live abroad, the Streamlined Foreign Offshore Procedures (SFOP) may be a better fit.
You have previously filed tax returns. You must have filed federal income tax returns for the past three years, even if they were incomplete or missing offshore income.
You failed to report foreign income or assets. This includes not filing required forms like FBAR (FinCEN Form 114) or Form 8938 (FATCA).
Your noncompliance was non-willful. You must certify that your mistakes were due to negligence, oversight, or a misunderstanding of your reporting obligations. If you acted knowingly or tried to conceal information, SDOP is not for you.
You are not currently under IRS audit or investigation. If the IRS has already contacted you about your foreign accounts, you’re no longer eligible for SDOP.
If you’re unsure whether your actions were non-willful, it’s important to consult a tax attorney before moving forward. Misclassifying willful behavior as non-willful can carry serious consequences.
Key Benefits of SDOP
The SDOP offers substantial relief for taxpayers who qualify:
One-time 5% penalty. Instead of facing separate penalties for each missed form or year, you pay a single penalty equal to 5% of the highest aggregate value of your unreported foreign assets.
No additional FBAR or FATCA penalties. Once accepted, the IRS will not impose additional fines for late FBARs or unfiled information returns.
No criminal prosecution. By correcting the issue voluntarily and honestly, you greatly reduce your legal risk.
Peace of mind and a clean slate. Completing SDOP means resolving your foreign reporting obligations and moving forward without fear of audit or investigation.
How the 5% Penalty Works
The Title 26 Miscellaneous Offshore Penalty replaces all other potential offshore-related penalties. Here’s how it’s calculated:
Identify all foreign financial assets that were not properly reported on FBARs or Forms 8938, or where the related income wasn’t reported.
Determine the highest aggregate value of those assets during the 6-year FBAR period or 3-year tax return period, whichever is higher.
Multiply that value by 5%.
Example: If your highest total account value over those years was $300,000, the penalty would be $15,000.
This penalty is paid along with any taxes and interest owed when you submit your SDOP package.
5% Offshore Penalty Calculator
Method 1: Enter highest aggregate value
Estimated 5% Penalty:
Method 2: Calculate from yearly values
Highest Value: $0
Estimated 5% Penalty: $0
What Foreign Assets Are Included?
Assets that count toward the penalty base include:
Bank and investment accounts at foreign financial institutions
Accounts at foreign branches of U.S. banks
Foreign mutual funds and ETFs
Foreign pension plans and life insurance with cash value
Interests in foreign corporations, partnerships, and trusts
Not all foreign assets are counted. If a foreign asset was properly reported and the related income was reported, it may be excluded. Still, calculating this correctly is critical and easy to get wrong without guidance.
Step-by-Step: How to Apply for SDOP
Here’s what the SDOP application process looks like:
1. Amend Your Last 3 Years of Tax Returns
Use Form 1040X to amend each return. You must include previously unreported foreign income and file any required forms such as:
Form 8938 (Statement of Specified Foreign Financial Assets)
Form 3520 / 3520-A (Foreign trusts and gifts)
Form 5471 / 5472 / 8865 / 926 / 8621 (Foreign entities)
At the top of each amended return, write “Streamlined Domestic Offshore” in red ink.
2. File FBARs for the Last 6 Years
Use the FinCEN BSA E-Filing System to submit Form 114 for each year. Select “Other” as the reason for filing late and explain that the FBARs are part of the streamlined procedures.
3. Complete IRS Form 14654
This is your Certification by U.S. Person Residing in the U.S. It certifies that:
You’re eligible for SDOP
You’ve filed all delinquent FBARs
Your conduct was non-willful
Your penalty calculation is accurate
Attach copies of the signed form to each amended return and information return.
4. Pay All Taxes, Interest, and the 5% Penalty
Send full payment with your submission. This includes all taxes, interest, and the 5% Title 26 penalty. Write your Taxpayer Identification Number on the check.
5. Mail Your Entire Submission
Send your paper package to the IRS’s SDOP processing unit in Austin, Texas. Electronic submissions are not accepted.
SDOP vs. Other IRS Programs
If you don’t qualify for SDOP, the IRS Voluntary Disclosure Program (VDP) may be an option. VDP is for taxpayers whose noncompliance was willful. It typically involves higher penalties and more scrutiny. However, it also protects against criminal prosecution.
| Program | Penalty Structure | Intended For | Residency Requirement |
|---|---|---|---|
| Streamlined Domestic | 5% penalty. No FBAR fines. | Non-willful U.S. residents | Must reside in the U.S. |
| Streamlined Foreign | 0% penalty | Non-willful expats | Must live outside the U.S. |
| Voluntary Disclosure (VDP) | Higher, tiered penalties | Willful taxpayers | Available to all |
Do You Need a Tax Attorney for SDOP?
While it’s possible to apply on your own, the stakes are high. Missteps in calculating the penalty, certifying non-willfulness, or filing forms can lead to rejection. In some cases, they can trigger additional penalties or legal exposure.
A qualified offshore tax attorney can:
Help assess your eligibility and risk
Prepare your non-willful certification correctly
Accurately calculate the 5% penalty
Ensure your disclosure is complete and well-documented
Communicate with the IRS on your behalf if needed
If you’re unsure whether you qualify or how to proceed, it’s wise to get professional help early in the process.
Final Thoughts: Resolve Offshore Tax Issues with Confidence
The Streamlined Domestic Offshore Procedures give U.S. taxpayers a chance to correct past mistakes and get back on track. This can be done without facing excessive penalties or legal action. If you acted in good faith and simply didn’t know about your obligations, SDOP offers a second chance to make it right.
At Silver Tax Group , our experienced team can walk you through the entire process. From eligibility evaluation to submission and follow-up, we’ve helped hundreds of clients resolve offshore tax issues quickly and securely.
Contact us today for a confidential consultation and take the first step toward full compliance and peace of mind.
