New Rules for How to Establish Non-Willfulness for Streamline Program and Other FAQ Updates

The most recent updates to the FAQs for the Streamlined Foreign Offshore Procedures (SFOP) and Streamlined Domestic Offshore Procedures (SDOP) have all the trappings of a celebrity scandal, but in fact they serve a far more practical purpose. We’ll get there in a minute, but first, you may ask, why all the commotion about a couple of updated FAQs?

In general, the IRS’ foreign asset disclosure initiatives, including the Offshore Voluntary Disclosure Program (OVDP) as well as the SFOP and SDOP, generate a lot of curiosity. In order to clarify the regulations, the IRS decided to rely heavily on the FAQ format to transmit official information about the initiatives.

See for yourself – here are some approximate word counts (in Februrary, 2016) of the following official IRS web pages concerning each topic:

As you can see, the published guidance comes predominantly in the form of FAQs. So when an SFOP or SDOP FAQ changes, people pay attention. Next, on to the actual FAQ updates.

Update 1: Tell-alls (changes to SFOP FAQ #6 and SDOP FAQ #13)

The IRS made this update because they were receiving many claims of non-willfulness and not much background information to support them. (Keep in mind that being non-willful is the key requirement for eligibility for the SFOP or SDOP.) This FAQ indicates that full background information should accompany non-willfulness claims. The FAQ text now includes the phrases “whole story” and “complete story” and emphasizes that all information, both favorable and unfavorable, needs to be included.

The text now also includes a non-comprehensive laundry list of common situations that may have triggered disclosure requirements, including international inheritances, businesses, form 1040 oversights, and offshore advisors. Additionally, there is guidance that spouses with different “stories” concerning non-willfulness should submit those stories individually. As the saying goes, when there are two people, there are three viewpoints. And the IRS wants all of them. Separately.

Update 2: Ex-spouses and red ink (SFOP FAQ #7 and SDOP FAQ #14)

The IRS recognizes that spouses, and especially former spouses, often have strong differences of opinion, and it is often difficult to secure an ex-spouse’s signature for an SFOP or SDOP documentation. This FAQ suggests that in case of an uncooperative spouse or former spouse, a filer may submit paperwork with his or her signature alone under the following conditions:

  • The disclosure results in an increase in the filer’s tax liability. In other words, you can only streamline your filing this way if it will result in a higher tax bill for you.
  • A narrative explanation (i.e. another story) of the spouse’s refusal to sign must be attached,
  • The applicant should reference, in the place where the spouse’s signature should have gone on the form, and in red ink no less, the appropriate FAQ number.

The IRS likes to rely on FAQs when providing guidance on the OVDP, SDOP and SFOP. To prove non-willfulness for the purposes of the SDOP or SFOP, any and all details concerning the foreign assets should be included. If your ex-spouse won’t play ball in co-signing your SFOP or SDOP submission, you are welcome to pay more tax without his or her signature. You still need that signature to reduce your tax bill.

 The FAQs Update Makes OVDP, SFOP and SDOP More Accessible

Apart from the procedural importance of the FAQ updates, we would mention that in terms of providing guidance, the FAQ format for the OVDP, SFOP, and SDOP are fairly accessible to the average reader. More so than the Internal Revenue Code itself, for example. Combined with the fact that these two updates are clearly based on real-life experiences IRS agents are encountering with applicants, we believe that the IRS is making a well-meaning attempt to clarify the complex set of regulations that are the SFOP and SDOP.

Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.