IRS streamlined domestic offshore procedures: complete 2025 guide
Many US taxpayers with foreign accounts or assets discover too late that the Internal Revenue Service (IRS) expects full disclosure, even if those assets are abroad. Some believe that living in the US means overseas property or bank accounts don’t count. Others assume a foreign bank or employer has already reported the information, not realizing that the IRS still holds them personally accountable.
The streamlined domestic offshore procedures (SDOP) offer a solution when taxpayers in such situations want to get back into compliance. This IRS program allows you to correct past mistakes, properly report foreign income and accounts, and reduce exposure to civil and criminal penalties.
This article is brought to you by Taxes for Expats (TFX) – a top-rated US tax firm trusted by Americans and green card holders in 190+ countries. Not sure if the streamlined procedures apply to your situation? Our experts will review your case, confirm your eligibility, and guide you through the next steps – contact us.
What are streamlined domestic offshore procedures (SDOP)?
The IRS created SDOP in 2014 as part of its streamlined filing compliance procedures. The goal is to encourage voluntary correction of foreign reporting failures by taxpayers who did not intentionally evade taxes.
Under the program, eligible taxpayers:
- Amend 3 years of tax returns to include previously unreported foreign income.
- File 6 years of FBARs (FinCEN Form 114).
- Pay any tax owed, plus interest.
The program requires taxpayers pay a 5% miscellaneous offshore penalty.
Difference from streamlined foreign offshore procedures (SFOP)
It’s important to distinguish between the two streamlined programs the IRS offers.
The streamlined domestic offshore procedures (SDOP) apply to US residents. By contrast, the streamlined foreign offshore procedures (SFOP) are designed for US taxpayers who meet the IRS non-residency test, typically those living outside the US for most of the year.
Residency is not always straightforward. The IRS applies tests such as the substantial presence test and the bona fide residence test to decide whether you qualify as a US resident or non-resident. We’ve built a calculator to help you quickly check where you stand under the substantial presence test.
Getting this right is critical, because filing under the wrong program can lead to rejection or added penalties. One of the biggest advantages of SFOP is that eligible taxpayers avoid the 5% penalty altogether – making SFOP the best option for non-residents.
At Taxes for Expats, we can help clarify your residency status in the US, ensuring that you enter the correct streamlined program from the start.
Who qualifies for SDOP?
To qualify for the streamlined domestic offshore procedures, you must meet three main requirements:
- US residency – You lived in the US during the relevant tax years.
- Non-willful conduct – Your failure to file was not intentional. Misunderstanding the law, relying on incorrect advice, or simple negligence can be non-willful.
- Filing obligations – You failed to properly report foreign income or disclose foreign assets (Form 1040 with foreign income, FBAR, FATCA reporting, foreign trust or entity forms, etc.)
Why SDOP is worth it
Participating in the streamlined domestic offshore procedures isn’t risk-free in the sense that you’ll pay back taxes, interest, and a 5% penalty. But these are normal parts of the compliance process. The real risk lies in doing nothing, which can expose you to severe FBAR and FATCA penalties or even criminal charges.
Key benefits:
- Reduced penalties – Instead of FBAR fines of $10,000+ per account, per year, you pay a one-time 5% miscellaneous offshore penalty.
- No criminal exposure – Accepted taxpayers are treated as non-willful, protecting them from prosecution.
- Peace of mind – Once your submission is accepted, your case is closed and you move forward compliant.
The 5% miscellaneous offshore penalty penalty is calculated on the highest balance of your unreported foreign assets during the six-year FBAR period. Any unpaid tax from unreported foreign income for the past three years must be paid with interest – SDOP does not erase tax owed or interest charges.
“Even though SDOP includes a 5% penalty, it’s far less severe than the steep fines that can apply for failing to file FBARs or other foreign reporting forms. For example, a US resident with $200,000 spread across unreported foreign bank accounts faces a $10,000 penalty under SDOP (5%). Without the program, potential FBAR fines could exceed $60,000.”
Ines Zemelman, accredited enrolled agent (EA), founder and President at Taxes for Expats
Most properly prepared SDOP filings are accepted. If the IRS has questions about your non-willfulness certification, they may ask for additional documentation or conduct a closer review.
There are also other compliance options depending on your situation – delinquent FBAR submission if all income was reported but FBARs were missed, SFOP if you live abroad and meet the non-residency test, and the voluntary disclosure practice for willful non-compliance. We’ll review and compare these options in detail later in this article, but for US residents who qualify, SDOP is usually the best path to compliance.
Filing with SDOP: What you need to do
1. Collect financial records.
Start by gathering complete records of your foreign accounts, income, and assets. This includes bank statements, trust documents, property records, and investment reports covering at least the last six years.
2. File 3 years of amended returns.
You must file three years of amended tax returns (Form 1040-X), adding in any previously unreported foreign income. This may include rental income from foreign property, dividends from overseas investments, or compensation from a foreign employer. Amended returns should also include any foreign tax credits that apply, so you don’t overpay.
3. File 6 years of FBARs.
File six years of FBARs (FinCEN Form 114) to disclose all foreign accounts with balances over $10,000. Even if income from these accounts was minimal, reporting is still required.
4. Submit Form 14654 (certification).
Form 14654 is your Certification by US Person Residing in the United States for Streamlined Domestic Offshore Procedures. This is where you certify that your noncompliance was non-willful. The explanation must be truthful, detailed, and consistent with your filings.
5. Pay taxes, penalties, and interest.
Finally, you must pay all tax due on the amended returns, interest on those amounts, the 5% miscellaneous offshore penalty on the highest aggregate balance of unreported foreign assets.
Once the IRS processes your submission and payment, your case is generally considered closed, giving you a fresh start with full compliance.
SDOP vs. other IRS offshore compliance options
The IRS offers several paths for taxpayers with unreported foreign assets. Choosing the right one depends on your residency, intent, and filing history.
| Program | Eligible taxpayers | Requirements | Penalties |
| SDOP (streamlined domestic offshore procedures) | US residents, non-willful noncompliance | 3 years of amended returns, 6 years of FBARs, Form 14654 | 5% penalty on highest balance |
| SFOP (streamlined foreign offshore procedures) | US taxpayers living outside the US (meeting non-residency test) | 3 years of amended returns, 6 years of FBARs, Form 14653 | No penalty (if eligible) |
| VDP (Voluntary Disclosure Practice) | Taxpayers whose conduct may have been willful | More years of returns, more extensive disclosures | Much higher penalties; protects from criminal charges |
| Delinquent FBAR submission | Taxpayers who reported all income but missed FBARs | File late FBARs with explanation | No penalty if all income was reported |
Resolve your offshore noncompliance with TFX
The streamlined domestic offshore procedures are one of the best ways for US taxpayers to correct past mistakes and avoid life-altering penalties. Many clients discover gaps only after the fact – an inherited account, rental income from abroad, foreign equity or options, or assuming a bank or executor reported everything.
These situations are complex. SDOP requires amended returns, six years of FBARs, accurate penalty and interest calculations, and a clear, detailed non-willfulness certification.
At Taxes for Expats (TFX), we help you get it right. We will:
- Review your tax history to identify gaps and missed disclosures.
- Prepare all necessary filings (amended returns, FBARs, entity/trust reporting).
- Draft a strong, situation-specific non-willfulness certification.
- Calculate tax, interest, and the 5% penalty accurately – no surprises.
With decades of offshore disclosure experience, we’ve guided hundreds of US taxpayers through SDOP successfully. Whether your case involves foreign real estate, investments, pensions, or corporate ownership, we tailor the process to your situation.
FAQ
Processing time varies, but most submissions take 6-12 months. The IRS may request clarification, but if your package is complete and your non-willfulness statement is consistent, your case is usually accepted without further issue.
If you filed FBARs late but didn’t amend your tax returns, SDOP may still be required to correct unreported income.
Yes. Virtual currency accounts with foreign exchanges can fall under FBAR and FATCA reporting rules. If you didn’t disclose crypto assets abroad, SDOP can be used to amend returns and file FBARs just as with traditional foreign accounts.
Yes. Foreign pensions, retirement savings, and other accounts must be disclosed. SDOP requires complete reporting, even if you believe the account is too small to matter.
No. Once your SDOP package is accepted, the IRS considers the matter resolved. As long as you stay compliant going forward, your prior noncompliance won’t create ongoing audit risk.
Yes. Even if the accounts are no longer open, you must disclose them if they were active during the relevant years.
Yes. SDOP is available to anyone considered a US tax resident, including dual citizens and green card holders. If you live in the US and your failure to report foreign accounts or income was non-willful, you can generally use SDOP to correct past noncompliance.
