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RELIEF PROCEDURES FOR CERTAIN FORMER CITIZENS

September 10, 2019

By Joshua Ashman, CPA & Nathan Mintz, Esq.

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IRS ANNOUNCES NEW TAX AMNESTY PROGRAM FOR FORMER CITIZENS

This past Friday, the IRS announced the opening of a brand new amnesty program aimed specifically at tax-delinquent US citizens who relinquished, or intend to relinquish, their U.S. citizenship, and who wish to come into tax compliance and avoid being subject to the U.S. exit tax among other negative ramifications associated with non-compliance.

The new program, which the IRS has dubbed the “Relief Procedures for Certain Former Citizens”, has some similarities to the popular Streamlined Procedures amnesty program, but also some significant differences. In this blog, we outline the eligibility requirements for the new program as well as the relief provided to successful participants.

RELIEF FOR FORMER CITIZENS – ELIGIBILITY REQUIREMENTS

The IRS web page dedicated to the new program lists a number of requirements for entering the program, as follows:

1. The individual (entities cannot enter the program) is a U.S. citizen who relinquished citizenship after March 18, 2010. Not coincidentally, this is the date FATCA was enacted.

2. The individual has no filing history as a U.S. citizen or resident. Interestingly, the IRS notes in its FAQs that if the individual mistakenly filed in the past as a non-resident (i.e., by filing the Form 1040NR), this does not make the individual ineligible for the program.

3. The individual did not exceed the two thresholds that trigger the U.S. exit tax:

  • Average annual net income tax for the 5 years ending before the date of renunciation is more than a specified amount that is adjusted for inflation ($168,000 for renunciations in 2019).
  • Net worth is $2 million or more on the date of renunciation

4. The individual has an aggregate total tax liability of $25,000 or less for the five tax years preceding renunciation and in the year of renunciation. This amount is calculated after the application of all applicable deductions, exclusions, exemptions and credits (including foreign tax credits), but excluding the application of the exit tax and any penalties and interest.

5. The individual submits all required Federal tax returns for the six tax years at issue (the year of renunciation and the previous 5 years), including all required schedules and information returns. You do not need a social security number to make a submission.

The IRS notes that the filing of late FBARs is actually not one of the eligibility requirements for the program. Rather, if you have an FBAR filing requirement, you should file, because if you are eligible to participate and file FBARs before your submission or contemporaneously with your submission, the IRS will not assert FBAR penalties.

6. The individual submits a copy of the Certificate of Loss of Nationality (CLN) of the United States, Form DS-4083, or a copy of court order cancelling a naturalized citizen’s certificate of naturalization; as well as identification documentation (valid passport or birth certificate).

7. The individual’s past compliance failures were due to non-willful conduct. The IRS does not mention the need to submit a specific statement explaining the non-willfulness, as it requires under the Streamlined Procedures.

RELIEF FOR FORMER CITIZENS – THE OUTCOME

After reviewing the individual’s submission, the IRS will send a letter notifying him or her that the submission was received and complete. (This is in contrast to the Streamlined Procedures, under which the participant only hears back from the IRS if there is a problem with the submission.)

A successful participant is exempted from paying any penalties, interest, or exit tax, and from paying any income taxes that are due. (This is in contrast to the Streamlined Procedures, under which the participant can avoid penalties, but must pay any taxes due with interest).

THE NEW AMNESTY PROGRAM – WHAT IT MEANS FOR US EXPATS

The IRS’s new amnesty program is a welcome development for expats, especially for accidental Americans who have renounced or plan to renounce, and have only recently found out that U.S. citizenship carries with it U.S. tax and reporting obligations.

This program and the Streamlined Procedures are now two great options for coming clean with the IRS, depending on your situation. Several other amnesty options are available as well. Each option has its advantages and disadvantages, and choosing the best way forward requires a careful analysis of your particular facts and circumstances.

Our experts at Expat Tax Professionals are available to help discuss your options and guide you through each step of the disclosure process.

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