Three Myths About Post-Tax Amnesty Compliance Debunked
The great thing about participating in an IRS tax amnesty program is that a late-filing U.S. expat can catch up with little to no penalties. The challenge that lies ahead, however, is staying consistently compliant in subsequent years.
Post-amnesty life for U.S. expats can, in many ways, be just as important as the tax amnesty program itself. In this blog, we debunk three myths about staying compliant after a tax amnesty program.
1- Now that I’m back in compliance, I should be off the IRS radar.
It’s a common belief among successful amnesty participants that disclosing to the IRS and catching up means that you’ve won the favor of the IRS.
In fact, quite the opposite is true. A checkered filing past most likely means a short leash from now on. Moving forward, the IRS will likely be paying closer attention to your filing compliance than the average filer.
In this regard, just recently, the IRS announced that it is opening a new audit campaign focusing on this very issue – post-amnesty compliance. According to the IRS website, the new campaign will address amnesty participants’ “failure to remain compliant with their foreign income and asset reporting requirements. The IRS will address tax noncompliance through soft letters and examinations.”
For this reason alone, it’s crucial for amnesty participants to remain consistent filers.
2- Late filing after a tax amnesty program shouldn’t jeopardize my successful participation.
The most popular of the tax amnesty programs, the Streamlined Procedures, allows late filers to come back into compliance with no penalties. Successful participation hinges on the taxpayer’s ability to demonstrate in writing to the IRS that his or her past non-compliance was non-willful.
One of the unique aspects of the Streamlined program is that the IRS does not officially approve or certify a successful taxpayer submission. In this sense, no news is good news following participation in the Streamlined Procedures.
The open-endedness of the Streamlined program, however, is what should make taxpayers very wary of falling out of compliance in subsequent years. This is because the IRS may take the subsequent non-compliance to mean that the taxpayer was not genuine in expressing remorse over past late filings. It can then reject the original Streamlined submission, opening the floodgates to severe penalties for the many years of past non-compliance.
3- Filing just one return this time shouldn’t take long, so I can procrastinate.
It is true that filing one tax return and FBAR should be shorter and cleaner than filing the three returns and six FBARs required under the Streamlined Procedures.
However, this does not mean that you should wait until the last minute to get started on your annual tax filing. When it comes to taxes, it’s always best to get a head start early in the season so you don’t get anywhere near running afoul of the annual deadline, especially if you are under scrutiny as a past amnesty program participant.
Filing on time and even early demonstrates to the IRS that you are serious about staying in compliance on a consistent basis from here on in. Getting on the good side of the IRS is never a bad thing to do.
By Joshua Ashman, CPA & Nathan Mintz, Esq.