U.S. taxpayers who have failed to file FBARs (FinCEN Form 114) to report their foreign bank accounts have several IRS compliance programs available to them — but two of the most commonly considered (and misunderstood) options are the Streamlined Filing Compliance Procedures (SDOP for U.S. residents, SFOP for non-residents) and the Delinquent FBAR Submission Procedure (DFSP). While both programs allow taxpayers to come into compliance and potentially avoid the harshest FBAR penalties, they differ significantly in their eligibility requirements, scope of filings, and penalty exposure. Choosing the wrong program — or filing outside of a formal program altogether — can result in unnecessary penalties, increased IRS scrutiny, or even disqualification from more favorable relief. Understanding which program applies to your specific situation is a critical first step, and one that requires careful legal analysis.
The Delinquent FBAR Submission Procedure is the narrower of the two options. It is available only to taxpayers who failed to file FBARs but who properly filed their federal income tax returns and fully reported and paid tax on all income from the foreign accounts in question. The taxpayer also must not have been previously contacted by the IRS regarding an examination or a request for delinquent returns. If these rigid eligibility requirements are met, the IRS will not impose a penalty for the delinquent FBAR filings. However, the DFSP only addresses unfiled FBARs — it does not cover unreported income, unfiled or amended tax returns, or other delinquent international information returns such as Forms 8938, 5471, or 3520. The Streamlined procedures, by contrast, are far more comprehensive. Under the SDOP (for U.S. residents) or the SFOP (for non-residents), taxpayers file three years of amended or delinquent income tax returns together with all required international information returns, plus six years of delinquent FBARs. The SDOP carries a one-time miscellaneous offshore penalty of 5% of the highest aggregate year-end balance of unreported foreign financial assets, while the SFOP carries a 0% penalty. Both programs require the taxpayer to certify under penalties of perjury that their noncompliance was non-willful, and both also resolve failure-to-file penalties, failure-to-pay penalties, accuracy-related penalties, information return penalties, and FBAR penalties — providing a far more complete resolution than the DFSP alone.
The right choice depends entirely on the taxpayer’s individual facts. If a taxpayer has always properly reported all foreign income on their tax returns and simply failed to file FBARs, the DFSP may be the most straightforward and penalty-free solution. However, if there is any unreported income from the foreign accounts, any unfiled or incorrect tax returns, or any delinquent international information returns beyond the FBAR, the DFSP will not be available and the Streamlined procedures will likely be the better path. It is also important to note that filing a delinquent FBAR outside of any formal program provides no penalty protection whatsoever and is strongly discouraged. Patel Law Offices has successfully filed hundreds of both DFSP and Streamlined cases with the IRS and has counseled over 1,000 clients in voluntary disclosure and international compliance matters. Led by Mr. Patel — a Board Certified Tax Law Attorney and graduate of Georgetown (J.D.) and New York University (LL.M. in Tax) — our legal team carefully evaluates each client’s facts to determine which compliance pathway offers the best outcome. If you have unfiled FBARs and are unsure which program is right for you, contact Patel Law Offices to schedule a strategy session.