When it comes to resolving past non-compliance with US tax obligations related to foreign accounts or assets, the IRS has provided several routes over the years. While the Streamlined Filing Compliance Procedures (SFOP and SDOP) are currently the most commonly used options, other programmes like the Offshore Voluntary Disclosure Program (OVDP), now closed, and the IRS Criminal Investigation Voluntary Disclosure Practice (CI-VDP) have also played key roles. Here, we compare these programmes in terms of eligibility, process, and penalties to help taxpayers understand which path may be most appropriate based on their circumstances.
1. Streamlined Filing Compliance Procedures (SFOP & SDOP)
Purpose: Designed for taxpayers whose failure to report foreign income or assets was non-willful—due to negligence, mistake, or a misunderstanding of the law.
Eligibility:
- Must certify non-willfulness.
- SFOP: Must meet non-residency requirements (physical presence test).
- SDOP: US residents who do not qualify for SFOP.
- Cannot be under IRS audit or criminal investigation.
Process:
- File three years of tax returns (original or amended).
- File six years of FBARs.
- Submit Form 14653 (SFOP) or 14654 (SDOP) to certify non-willfulness.
- Pay tax and interest due; under SDOP, also pay a 5% penalty.
Penalties:
- SFOP: No penalties.
- SDOP: 5% of the highest aggregate value of unreported foreign financial assets.
Best For: Expats and US residents with non-willful foreign reporting failures.
2. Offshore Voluntary Disclosure Program (OVDP) – Now Closed
Purpose: Offered protection from criminal prosecution for taxpayers whose non-compliance was potentially willful.
Eligibility:
- Open to all taxpayers, regardless of residency.
- Required full disclosure of all offshore assets and income.
Process:
- Required eight years of amended tax returns and FBARs.
- Involved detailed submissions including source of funds, account history, and all relevant documentation.
Penalties:
- Up to 27.5% (or 50% in some cases) of the highest aggregate value of foreign financial assets over the disclosure period.
- Plus taxes owed and interest, along with accuracy-related and failure-to-file penalties.
Best For: Taxpayers with willful conduct seeking to avoid criminal prosecution.
Status: Closed in September 2018.
3. IRS Criminal Investigation Voluntary Disclosure Practice (CI-VDP)
Purpose: Successor to the OVDP, this practice is aimed at taxpayers who may have committed wilful violations of US tax law and wish to come forward voluntarily before being contacted by the IRS.
Eligibility:
- Taxpayers who believe they may face criminal exposure due to wilful conduct.
- Available to both domestic and offshore non-compliance.
- Must apply through IRS Criminal Investigation (CI) first.
Process:
- Submit Form 14457 in two parts (preclearance and full disclosure).
- Provide detailed narrative of non-compliance, including assets and income.
- File six years of tax returns and FBARs, plus full cooperation with the IRS.
Penalties:
- Generally includes tax owed, interest, and civil fraud penalties (75%).
- May also include willful FBAR penalties.
Best For: Taxpayers concerned about criminal liability who want to self-report.
Key Differences at a Glance
| Feature | SFOP / SDOP | OVDP (Closed) | CI-VDP |
|---|---|---|---|
| Conduct Required | Non-willful | Willful | Willful |
| Residency Requirement | SFOP only (330-day rule) | None | None |
| Years Covered | 3 years tax, 6 years FBAR | 8 years | Typically 6 years |
| Penalties | None (SFOP), 5% (SDOP) | 27.5% or 50% | Civil fraud (75%) + FBAR |
| Criminal Protection | No | Yes | Yes |
| Current Availability | Open | Closed | Open |
Final Thoughts
Choosing the correct IRS disclosure route depends largely on your intent (wilful vs non-wilful) and residency status. The streamlined procedures offer a forgiving option for non-wilful taxpayers, particularly expats, while CI-VDP remains the only route available for those who may face criminal exposure.
The information in this blog post is for general informational purposes only and does not constitute professional tax advice. We strongly recommend consulting a qualified tax professional before making any decisions. US Expat Tax Advisor is not liable for any actions taken based on this content.
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