IRS streamlined domestic offshore procedures: complete 2026 guide

Many US taxpayers with foreign accounts or assets discover too late that the Internal Revenue Service expects full disclosure, even when the money, investments, or paperwork sits outside the US. Misunderstandings tend to cluster around “it’s overseas, so it doesn’t count” – and the IRS still holds the taxpayer (not the bank or employer) responsible for reporting.

As of February 23, 2026: The official reference point that governs the streamlined rules for taxpayers residing in the US is the IRS website.

In 30 seconds

• The streamlined domestic offshore procedures are built for US residents who previously filed required returns, but missed foreign income, FBARs, or international information returns due to non-willful conduct.

• The filing package generally includes 3 years of amended returns plus 6 years of delinquent FBARs, with tax and interest paid with the submission.
• The IRS streamlined domestic offshore procedures include a Title 26 miscellaneous offshore penalty equal to 5% of the highest year-end aggregate balance/value of covered foreign financial assets (computed from year-end values).

NOTE! US resident → SDOP (5%); nonresident → SFOP’s 0% applies only if you meet SFOP non-residency and other streamlined eligibility rules.

This article is brought to you by Taxes for Expats (TFX) – a US tax firm trusted by Americans and green card holders in 190+ countries. SDOP IRS cases move faster and cleaner when eligibility, covered years, and the penalty base are nailed down upfront – contact us.

What are streamlined domestic offshore procedures (SDOP)?

The streamlined domestic offshore procedure is the IRS’s US-resident track inside the streamlined filing compliance procedures, expanded to cover US residents as part of the program’s 2014 launch.

In the streamlined domestic offshore procedures IRS guidance, the goal is simple: fix non-willful foreign reporting gaps by correcting recent filings and getting back into full compliance.

Eligible taxpayers generally must:

• Amend the most recent 3 years using Form 1040-X and include any required international information returns.
• File FBARs (FinCEN Form 114) for the most recent 6 years for which the FBAR due date has passed.
• Pay the full tax and statutory interest due with the amended returns.

In practice, most cases do not begin with aggressive tax planning or intentional concealment. They start with an overlooked account, a misunderstood reporting rule, or a life change that quietly creates a filing gap.

Typical triggers

• An inheritance lands in a long-standing foreign account that was never reported on FBARs.
• A foreign pension starts paying out, and the income was missed on prior returns.
• Overseas rental income begins flowing in, but it wasn’t picked up in US reporting.
• An old bank account stays open “just in case,” then quietly crosses reporting thresholds.

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 obvious. For streamlined purposes, SDOP vs SFOP is determined by the IRS streamlined residency tests (not FEIE’s bona fide residence test). In particular, SFOP requires meeting the IRS “non-residency requirement.”

For US citizens and green card holders, that means in at least one of the most recent 3 years with a passed return due date (or extension), you had no US abode and were physically outside the US for at least 330 full days.

If you don’t meet that, you’re generally in the SDOP (US-resident) track if otherwise eligible.

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.

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Who qualifies for SDOP?

The IRS streamlined domestic offshore procedures are designed for US residents who made offshore reporting mistakes without intending to hide anything. The IRS keeps the eligibility rules straightforward, but each requirement matters.

1. US residency – You lived in the US during the relevant tax years.
2. Non-willful conduct – The failure to report must be unintentional. The IRS defines this as actions that resulted from negligence, inadvertence, mistake, or a good-faith misunderstanding of the law.
   
   Common non-willful situations include:
   - A tax preparer never asked about overseas accounts, so they were never disclosed.
   - An inherited foreign account continued earning small amounts of interest that were never reported.
   - Foreign dividends or rental income were misunderstood as taxable only abroad.
3. 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.). The domestic streamlined filing procedures are meant to correct those specific reporting gaps through amended returns and required information filings.

NOTE! For facts suggesting willfulness, consider VDP. – Some situations fall outside the safety of the domestic streamlined procedures.

Large transfers after learning about reporting rules, moving funds between accounts to avoid visibility, or prior IRS warnings can raise willfulness concerns. In those cases, the IRS Criminal Investigation Voluntary Disclosure Practice may be the more appropriate path.

Benefits of IRS streamlined domestic offshore procedures

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 (relative to non-streamlined outcomes): – instead of facing a mix of potential FBAR/information-return penalties, SDOP generally substitutes a single 5% Title 26 miscellaneous offshore penalty (plus any tax/interest due). For context, non-willful FBAR penalties are capped at $16,536 per report (per FBAR) (inflation-adjusted), and willful FBAR penalties can reach $165,353 (inflation-adjusted maximum), subject to case facts and how penalties are applied.
• No criminal exposure – accepted taxpayers are treated as non-willful, protecting them from prosecution (unless an IRS examination later determines the original noncompliance was fraudulent and/or an FBAR violation was willful).
• Peace of mind – Once your submission is accepted, your case is closed, and you move forward compliantly.

The 5% miscellaneous offshore 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.

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.

NOTE! When Foreign Residency = SFOP, Not SDOP

Melendy spent 20 years in Spain and, therefore, qualified for SFOP instead of SDOP. Her experience helps highlight which residency conditions apply to each streamlined option.

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.

SDOP penalty calculation

Understanding the cost structure upfront removes most of the fear. The streamlined domestic offshore procedures penalty calculation is built around one core charge – the 5% miscellaneous offshore penalty – plus any actual tax and statutory interest. Everything else depends on the facts and how cleanly the submission is prepared.

Step-by-step domestic streamlined filing procedures

Step 1: Confirm you’re in the right program

You begin by making sure the streamlined domestic offshore procedures apply to you and not the foreign version. This decision is based on IRS residency rules and whether you already filed US tax returns for the most recent 3 years whose due dates have passed. Nothing is filed yet. This is a review step.

You handle this with your tax advisor. It is not submitted anywhere.

The most common mistake is choosing the wrong program and preparing everything under the wrong set of rules. Once work starts, fixing that error can be costly.

Step 2: Choose the 3 tax years you will amend

Next, you identify the 3 tax years that must be corrected under the domestic streamlined filing procedures. The IRS defines this using return due dates, not calendar years. You look at the most recent return due dates that have already passed at the time you submit.

You or your preparer determines the years. These returns will later be filed with the IRS as amended returns using Form 1040-X.

A frequent mistake is counting backward by year instead of using the IRS due-date rule. That simple error can invalidate the submission.

Step 3: Gather your offshore information

Now you collect the records that support everything that follows. This includes foreign bank statements showing year-end balances, documents reflecting foreign income such as interest, dividends, rental income, or employer compensation, and proof of account or entity ownership.

You gather these records. Nothing is filed yet. These documents will support both your amended returns and your penalty calculation.

A common mistake is using peak balances instead of December 31 balances. Another is missing ownership details that trigger extra international forms.

Step 4: Prepare the corrected tax returns (Form 1040-X)

You prepare amended returns for the 3 covered years using Form 1040-X. These are filed in paper form with the IRS as part of your streamlined submission.

This is where previously unreported foreign income is added. You also apply foreign tax credits if available, so you do not overpay.

If you previously claimed the foreign earned income exclusion, check your FEIE calculations carefully. Make sure Form 2555 qualifying days and income amounts match your actual travel and earnings. Small mismatches create credibility problems.

A major mistake is trying to use SDOP to file original delinquent returns. The IRS does not allow that under this program.

Step 5: Prepare and e-file 6 years of FBARs

You prepare FinCEN Form 114 for each of the 6 required years. These are not filed with the IRS. They are submitted electronically through FinCEN’s BSA E-Filing system.

When filing late as part of the streamlined domestic offshore procedures, you select “Other” as the reason for late filing and enter “Streamlined Filing Compliance Procedures” in the explanation field.

You or your preparer completes and e-files these. They go to FinCEN, not the IRS.

The most common mistake is mailing FBARs with the tax returns or skipping a year because the account earned little income. Reporting depends on account balance, not income.

Step 6: Calculate the 5% penalty base

You calculate the Title 26 miscellaneous offshore penalty required under SDOP. The penalty equals 5% of the highest single-year-end aggregate value of foreign financial assets subject to the penalty during the covered period.

This calculation is included in your certification and paid with your submission to the IRS. The typical mistake is using the highest balance during the year instead of the year-end value, or including assets that are not part of the penalty base.

Step 7: Complete Form 14654 (the certification)

You complete and sign Form 14654, certifying that your conduct was non-willful and that your penalty calculation is accurate. This form is filed in paper form with the IRS, and copies are attached to each amended return and each information return included in your package. Your explanation must clearly describe how the issue happened and how you discovered it.

As Wendy Christensen, CPA, Tax Supervisor at Taxes for Expats, explained during the webinar on the Streamlined Procedure:

The most common mistake is writing a short, vague statement that does not match the facts shown in the returns.

Step 8: Assemble the SDOP submission package

You assemble everything into one paper package for the IRS. Each amended return and each information return must have “Streamlined Domestic Offshore” written in red at the top of the first page so it is processed correctly.

Payment for tax due, interest, and the 5% penalty is included with this mailing. A frequent mistake is forgetting the red labeling, which can cause the returns to be processed outside the streamlined procedures.

Step 9: Mail to the correct IRS address

You mail the full streamlined domestic offshore procedures package to the IRS address designated for domestic streamlined submissions in Austin, Texas. The FBARs, again, are not mailed – they are already filed electronically with FinCEN.

A common error is mixing up filing locations and sending documents to the wrong agency.

Step 10: Monitor and respond if needed

You track delivery and keep copies of everything submitted. The IRS does not typically send a special acknowledgement that your submission was accepted. If the IRS issues a notice, you respond directly and clearly, correcting any computational differences if necessary.

The mistake here is assuming silence means something went wrong. In most cases, once the IRS processes your payment and returns, the matter is considered resolved, and you move forward in 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.

Behind on FBARs? Work with our experienced CPAs to fix it accurately the first time.

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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. As CPA and Tax Supervisor, Wendy Christiansen emphasized:

That’s why at Taxes for Expats (TFX), here’s what you get when you use our IRS SDOP support:

• Eligibility and year coverage review so the filing matches IRS rules from day one
• Complete amended return package for the required years, including foreign income, credits, and required entity or trust forms
• FBAR preparation and e-filing through FinCEN, with the correct streamlined late-filing explanation
• Form 14654 non-willful certification drafted to fit your facts, with a clear narrative aligned to IRS expectations
• 5% penalty base calculation and payment mapping, reviewed for accuracy before anything is sent
• Final assembly and submission check for the streamlined domestic offshore procedures package, plus support if the IRS follows up

With Streamlined Procedure experience since 2012 and a proven system used by 2,200+ Americans, our CPAs handle cross-border details and layered review so your streamlined submission is accurate the first time.

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