The Internal Revenue Service came out with new procedures allowing expatriates who have renounced their US citizenship the opportunity to comply with their tax obligations and in turn, benefit from tax exemptions, fines, and interest.
The exemption procedures for some former citizens will only apply to those who have not filed a tax return in the United States as a citizen, or residents, owes the United States Government a limited amount of back taxes ($ 25,000 in the last six years), and has a net worth of less than $ 2 million. According to the IRS, only new taxpayers whose previous compliance breaches were unintended can benefit from the latest procedures. It is possible that many people in this group lived outside the United States for most of their lives and did not know they had tax obligations in the United States.
This assistance comes almost ten years after the approval of the Foreign Account Fiscal Compliance Act, which was part of the HIRE Act of 2010. FATCA has asked foreign financial institutions to report the US taxpayer activities to IRS or pay fines of up to 30% of your income from US sources. The controversial law forced many foreign banks to close their accounts of international customers in the United States and made it difficult for many of them to find banking services. Some of them lived abroad all their lives and did not know they were American citizens. The law resulted in a steady increase in the number of US citizens living abroad, but the IRS still expected them to pay taxes on previously earned money.
According to the IRS, qualified persons wishing to use the new exemption procedures must file pending US income tax returns, including all information programs and declarations required during the last five years and year of expatriation. As long as the tax debt does not exceed a total of $ 25,000 in the six years concerned, the taxpayer will be exempt from payment of US tax. The new procedures are meant to relieve some former citizens. Fines and interest do not apply to persons qualified for the process.
The IRS said it would offer procedures with no specific closing date, but that it would finally announce a closing date before the end of the proceedings. Persons, who have renounced their US citizenship at any time after March 18, 2010, the year FATCA was enacted, are eligible provided they meet the other procedural requirements.
The IRS warned that the procedures are only available to people. Estates, trusts, corporations, partnerships, and other entities may not use the methods.
The IRS plans to hold an online webinar soon, which will provide more information and practical advice on how to present support procedures to former citizens. However, it called for caution before taxpayers decide to give up their citizenship.
"Renouncing American citizenship and the resulting tax consequences is a serious problem that involves irrevocable decisions," said the IRS. "Taxpayers who renounce their citizenship without paying US tax obligations are subject to the significant tax consequences of the US tax regime for expatriates, and taxpayers interested in these procedures must carefully read all of the documentation, including Frequently Asked Questions, and consider consulting legal counsel before making any decision."
Moreover, for the six tax years issue (the year of the expatriation and the five previous prior years), any violation of the presentation of the required tax declarations and the payment of taxes and penalties for the years at issue must be due to the Non-voluntary behavior of taxpayer. Mandatory tax returns include tax returns, gifts, and information (the latter consists of Form 8938, the declaration of specified foreign financial assets) and FinCEN Form 114, the Foreign Financial and Financial Account Report, usually called FBAR. Non-voluntary behavior is one that results from negligence, inadvertence, error, or misunderstanding of the bona fide legal requirements.
Also, to qualify for assistance, a person must:
