Wednesday, January 13, 2016

Updated FAQs for SFOP and SDOP Streamlined Processes (1/13/16)

The IRS has updated the FAQs for the Streamlined Domestic and Streamlined Foreign Offshore Procedures.  The are here:  SFOP FAQs, here, and SDOP FAQs, here.  Both were last reviewed and updated on 1/7/16.

My review indicates that the important items are:

1.  More detail on what the IRS expects from the narrative supporting the certification of nonwillfulness.  (SFOP FAQ 6; SDOP FAQ 13.)  In some cases, the IRS was getting narratives that did not contain enough detail to support the taxpayers' certifcations of nonwillfulness.  Most practitioners regularly working in this area already knew that the narrative had to have sufficient details -- not just conclusory allegations -- to support the certification.  So, for those practitioners, I am not sure that the new FAQs add to what they already knew and implemented in making submissions.  But other practitioners may find the new FAQs helpful, and certainly taxpayers going through the process without representation will get a sense of what the IRS will need to process the certifications.  In sum, the narrative must include "the whole story including favorable and unfavorable facts."  (Bold face supplied by JAT.)  The process is one of persuasion from the facts -- favorable and unfavorable -- and that's where a practitioner regularly engaged in the art of persuasion may be able to add value in the submission.  Also, a tip given to me by an IRS person working in the area -- larger or multiple foreign accounts usually require more explanation than smaller or fewer accounts.  Thus, for example, a single $200,000 account owned directly rather than through an entity would likely not require as much detail supporting the certification as would accounts aggregating $10,000,000 owned by foreign entities.

2.  Process for handling joint returns requiring amendment where the other spouse may not participate by signing the amended returns or joint certification.  (SFOP FAQ 7; SDOP FAQ 14.)  The spouse participating in SFOP and SDOP may submit amended returns with only his or her signature (and not the nonparticipating spouse's signature) if the amended return reports additional tax due.  The submission should explain the inability to obtain the other spouse's signature with a prominent reference to the FAQ in issue.  The IRS will routinely request that the other spouse's signature be obtained, but if the other spouse still will not sign, the participating taxpayer notifies the IRS of this.  However, if the amended return indicates a refund for the year, this procedure is not available.

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