Streamlined Domestic Offshore Procedures for Missed Foreign Income

If you’re a U.S. taxpayer living stateside with unreported foreign accounts or income, the words “offshore compliance” probably don’t inspire joy. But here’s the good news: the Internal Revenue Service (IRS) knows mistakes happen—and they’ve created a pathway to help you fix them (before things get expensive).

It’s called the Streamlined Domestic Offshore Procedures (SDOP), and it’s designed for U.S. residents who failed to file FBARs or other international information returns—not because they were hiding yachts in the Cayman Islands, but because they didn’t know they had to.

Not to be confused with the Streamlined Foreign Offshore Procedures (SFOP)—which are for Americans living abroad—SDOP is for people residing in the U.S. who still need to clean up past offshore oversights.

Let’s break down what SDOP is, who qualifies, and how to file—without losing your mind or your savings in the process.

What are the Streamlined Domestic Offshore Procedures?

If you’ve just discovered that your offshore accounts or foreign income should’ve been reported to the IRS years ago, you’re not alone—and you’re not out of options.

The Streamlined Domestic Offshore Procedures (SDOP) program is designed specifically for U.S. taxpayers residing in the U.S. who failed to report foreign financial assets, such as overseas bank accounts, foreign income, or missed information returns (like Form 8938). The catch? Your non-compliance must be non-willful—in other words, you didn’t know you were supposed to report it, and you weren’t actively trying to dodge taxes.

Here’s what SDOP helps you fix:

• Delinquent FBARs (aka FinCEN Form 114)
• Missed U.S. tax returns and amended tax returns
• Unfiled FATCA-related forms (like Form 8938 and other international information returns)

The IRS rolled out SDOP as part of its broader Streamlined Filing Compliance Procedures, which replaced the stricter Offshore Voluntary Disclosure Program (OVDP). Where OVDP came with criminal risk and steep fines, SDOP was built for taxpayers who want to make things right—without fear of handcuffs or five-figure penalties.

And while it’s not a free pass (there’s still a 5% penalty involved), SDOP can save you from massive FBAR penalties and help you get fully back in compliance with U.S. tax law.

In short: it’s your second chance—no dramatic courtroom scenes required.

Eligibility requirements for SDOP

The Streamlined Domestic Offshore Procedures (SDOP) aren’t open to everyone—but if you live in the U.S. and unintentionally forgot to report offshore assets or income, you might be in luck.

To qualify, here’s what you’ll need to check off:

• You’re a U.S. citizen or permanent resident (i.e., you don’t qualify for the foreign version of the streamlined procedures because you live stateside).
• You failed to file required FBARs or international information returns—like Form 3520, 5471, or 8938—but your mistake was non-willful. Translation: you didn’t know you were supposed to report them, not that you actively tried to hide anything.
• You’re ready to submit original or amended tax returns for the past three tax years, with all the missing information returns included.
• You’re not currently under IRS audit or involved in a criminal tax investigation. If you are, the streamlined door is unfortunately closed.

How the penalty works (and why it’s lower than you think)

One of the main perks of the Streamlined Domestic Offshore Procedures? A much lighter penalty than previous IRS programs—especially compared to the now-closed Offshore Voluntary Disclosure Program (OVDP).

Here’s what to expect:

• The Title 26 Miscellaneous Offshore Penalty under SDOP is 5% of the highest aggregate balance of your foreign bank and financial accounts over the past six years.
• This penalty base includes not just bank accounts, but also foreign financial assets like foreign pensions or investment accounts—basically, anything you should’ve reported on FBARs or international information returns.

To qualify for this reduced penalty, you must certify that your non-compliance was non-willful—in other words, you didn’t intentionally skip your FBAR filings or income tax returns. For non-willful taxpayers, the IRS is willing to be lenient—just as long as you come clean before they come knocking.

How SDOP differs from SFOP (Streamlined Foreign Offshore Procedures)

The IRS offers two streamlined programs—SDOP and SFOP—but they’re designed for different types of taxpayers. Here’s how they stack up:

Residency rules

If you live in the U.S. (and have for most of the past few years), the Streamlined Domestic Offshore Procedures (SDOP) apply. The IRS uses specific criteria to determine this—if you were physically present in the U.S. for more than 35 days during the past 12 months, you’ll generally fall under SDOP.

If you’ve been physically living abroad for at least 330 full days in the past 12 months, you may qualify for the Streamlined Foreign Offshore Procedures (SFOP) instead.

Penalty structure

SDOP includes the 5% Title 26 miscellaneous offshore penalty, while SFOP has no penalty at all—but only if you meet the stricter non-residency requirements. That’s the tradeoff.

Filing differences

Both programs require you to file amended tax returns, FBARs, and any missing international information returns (like Forms 8938, 3520, or 5471).

But the SDOP process is geared toward U.S. residents trying to catch up, while SFOP is for expats and others with a closer connection to a foreign country.

In short: same goal, different path—based on where you live and how your tax situation fits into U.S. international tax law.

Step-by-step: How to file under SDOP

Filing under the Streamlined Domestic Offshore Procedures may sound like a bureaucratic gauntlet, but with the right roadmap, it’s surprisingly doable. Here’s how to get caught up—without losing your sanity:

Step 1: Gather your records

Start by collecting everything the IRS will want to see:

• Details of your foreign financial assets
• Account statements from offshore bank accounts
• Any missed international information returns (like Forms 3520, 5471, or 8938)
• Prior income tax returns to amend

Step 2: File 3 years of back tax returns

Submit original or amended U.S. tax returns for the most recent 3 years. Be sure to include all required information returns and properly report any foreign-source income.

Step 3: File 6 years of FBARs

You’ll also need to e-file 6 years of FBARs (FinCEN Form 114) reporting your foreign bank and financial accounts. These are submitted through the BSA E-Filing System, not with your tax return.

Step 4: Sign and submit Form 14654

This is your Certification by U.S. Person Residing in the U.S., where you confirm your non-willful conduct and calculate the 5% Title 26 offshore penalty. It must be signed under penalties of perjury—so accuracy matters.

Step 5: Submit everything electronically

Once all the pieces are in place, file using the IRS streamlined filing procedures—electronically, via the IRS and FinCEN systems. And then (finally!) exhale.

What happens after you file?

Once you’ve submitted everything under the Streamlined Domestic Offshore Procedures, the ball is officially in the IRS’s court. But what comes next?

IRS review timeline

The IRS doesn’t send confirmation receipts, and they won’t immediately let you know if everything is perfect. That said, most streamlined filing compliance procedures take 6 to 12 months to be reviewed—sometimes longer if your submission is flagged for further review.

What they’re looking for

IRS examiners will verify that you:

• Filed all required FBARs, information returns, and amended income tax returns.
• Properly calculated your 5% Title 26 penalty.
• Accurately completed Form 14654 (with a clear, credible explanation of non-willful conduct).
• Met all eligibility criteria, including U.S. residency and lack of criminal tax investigations.

Common pitfalls

Submissions can be rejected if:

• You omit forms or leave sections incomplete.
• Your statement of non-willfulness is vague or inconsistent.
• You miss a required filing requirement, such as a Form 5471 or FBAR for a prior tax year.
• You miscalculate your penalty base by underreporting foreign account balances.

If your submission is rejected, you won’t be invited to edit and resubmit. Instead, the IRS could assess civil penalties, including full FBAR penalties, for failure to file or for willful non-compliance.

When to work with a tax attorney or CPA

If the Streamlined Domestic Offshore Procedures were simple, the IRS wouldn’t need 50 pages of instructions to explain them.

Between reconciling foreign accounts, correcting income tax returns, and submitting years’ worth of information returns, the risks of going it alone can quickly outweigh any potential savings. In many cases, taxpayers miscalculate the penalty base, skip a required form (like Form 5471 or 3520), or misjudge whether their conduct qualifies as non-willful—each of which can derail an otherwise clean submission.

Working with a CPA or international tax attorney ensures you:

• Meet reporting requirements across the correct tax years
• Accurately calculate the Title 26 penalty
• Clearly document your non-willful conduct
• Stay compliant with both FBAR and FATCA rules
• Understand whether SDOP or Streamlined Foreign Offshore Procedures (SFOP) better apply to your situation

At Bright!Tax, we specialize in helping U.S. taxpayers get back on track through IRS programs like SDOP. Whether you’re navigating delinquent FBARs, foreign financial assets, or complex ownership structures, our experienced CPAs can guide you every step of the way.

Get back into compliance with confidence

The Streamlined Domestic Offshore Procedures offer a rare opportunity: a chance to fix past non-compliance with your foreign accounts and avoid the steep FBAR penalties that often come with it. For U.S. taxpayers who qualify, it’s one of the most efficient ways to resolve issues with unreported income, missing information returns, or late FBAR filings—all while minimizing your exposure to further IRS scrutiny.

But timing matters. Once the IRS contacts you about a potential issue, the SDOP window may close—and with it, your ability to file under more lenient terms.

At Bright!Tax, we help filers across the U.S. understand their options, file with confidence, and avoid costly mistakes. If you think SDOP might apply to you—or you’re just not sure—get in touch with us today. We’re here to help.

Frequently Asked Questions (FAQs)