IRS TAX AMNESTY – FREQUENTLY ASKED QUESTIONS

• How do I come back into compliance if I am late or have never filed U.S. taxes before?

The IRS offers several amnesty programs that allow you to catch up with your U.S. tax filing obligations without suffering penalties.

With increased bank information sharing between governments, keeping your head under the sand is becoming an increasingly untenable solution. The IRS amnesty programs represent the U.S. government's soft approach to encourage taxpayers to voluntarily come forward. The IRS incentivizes taxpayers to catch up by limiting or eliminating penalties.

Some late filers choose to abandon the amnesty programs and instead try their luck with alternative approaches, such as “noisy” disclosure (filing late returns with a statement explaining the reasons for the delinquency), “quiet” disclosure (filing late returns without any statement of explanation), or "prospective" filing (ignoring past delinquencies and complying only with respect to tax years moving forward).

We do not recommend these alternative approaches for a number of reasons. First, the IRS frowns upon attempts by taxpayers to circumvent the programs specifically designed to benefit delinquent taxpayers. Second, the outcomes associated with the alternative approaches can vary so greatly and can potentially lead to disastrous results. Third, we have yet to encounter a situation that justifies the risks associated with these approaches in contrast to the IRS amnesty programs, which offer the taxpayer certainty and a clean record moving forward.

• What are the Streamlined Procedures?

The IRS Streamlined Procedures is the main amnesty program for U.S. expats. It is designed for delinquent taxpayers – those who are late or have never filed – who can certify that that their failure to previously report all income, pay all tax, and submit all required tax information returns, including FBARs, resulted from non-willful conduct. This relatively low threshold simply requires that your delinquency was not intentional.

The IRS Streamlined Procedures have been a monumental success for the IRS, bringing many tens of thousands of late taxpayers back into annual compliance. Taxpayers benefit from the IRS Streamlined Procedures by avoiding a number of potential penalties for late filing.

Under the Streamlined Foreign Offshore Procedures (for taxpayers residing outside the United States), the taxpayer is required to submit:

• 3 years of tax returns and information returns
• 6 years of FBARs
• Non-willful certification (Form 14653).

Under the program, the participant avoids all penalties, but is required to pay the following:

• Unpaid taxes
• Interest

• Are the IRS Streamlined Procedures a permanent feature of the IRS?

No. Contrary to popular belief, the IRS has given no certainty that it will maintain its tax amnesty programs on a permanent basis. Recently, the IRS Commissioner expressed that the IRS is a long way from cancelling its voluntary disclosure programs, but at some point, once ignorance is no longer a valid excuse, the programs will come to an end or become significantly modified.

For this reason, if you are an expat who is late on filing your U.S. tax returns or FBARs, you should consider coming clean sooner rather than later. A number of options are currently available to you, including and in addition to the IRS tax amnesty programs. Each option has its advantages and disadvantages, and choosing the best way forward requires a careful analysis of your particular facts and circumstances.