Tuesday, June 26, 2012

IRS announced a plan to Help U.S. Citizens Overseas Become Compliant

WASHINGTON — The Internal Revenue Service today announced a plan to help U.S. citizens residing overseas, including dual citizens, catch up with tax filing obligations and provide assistance for people with foreign retirement plan issues.

"Today we are announcing a series of common-sense steps to help U.S. citizens abroad get current with their tax obligations and resolve pension issues," said IRS Commissioner Doug Shulman.

Shulman announced the IRS will provide a new option to help some U.S. citizens and others residing abroad who haven’t been filing tax returns and provide them a chance to catch up with their tax filing obligations if they owe little or no back taxes. The newprocedure will go into effect on Sept. 1, 2012.

The IRS is aware that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs).  Some of these taxpayers have recently become aware of their filing requirements and want to comply with the law.

To help these taxpayers, the IRS offered the new procedures that will allow taxpayers who are low compliance risks to get current with their tax requirements without facing penalties or additional enforcement action. These people generally will have simple tax returns and owe $1,500 or less in tax for any of the covered years.

The IRS also announced that the new procedures will allow resolution of certain issues related to certain foreign retirement plans (such as Canadian Registered Retirement Savings Plans).  In some circumstances, tax treaties allow for income deferral under U.S. tax law, but only if an election is made on a timely basis.  The streamlined procedures will be made available to resolve low compliance risk situations even though this election was not made on a timely basis.
Taxpayers using the new procedures announced today will be required to file delinquent tax returns along with appropriate related information returns for the past three years, and to file delinquent FBARs for the past six years. Submissions from taxpayers that present higher compliance risk will be subject to a more thorough review and potentially subject to an audit, which could cover more than three tax years.
The IRS also announced its offshore voluntary disclosure programs have exceeded the $5 billion mark, released new details regarding the voluntary disclosure program announced in January and closed a loophole used by some U.S. citizens.  See IR-2012-64 for more details.

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  1. Tax amnesty offered to Americans in Canada

    The United States has announced details of a long-promised amnesty program for the millions of Americans living in Canada and offshore – many who haven’t filed taxes for years.

    The U.S. Internal Revenue Service said Tuesday it will waive potentially massive penalties for certain “low compliance risk” tax payers who opt to come clean.

    To qualify, individuals must submit three years of back taxes, six years of bank reporting forms – so-called Report of Foreign Bank and Financial Accounts, or FBARs – and a signed letter explaining why they haven’t filed.

    The IRS defines low risk as people who have “simple” returns and owe less than $1,500 a year in taxes, based on the past three tax years.

    The United States is unique among developed countries in requiring all citizens, including dual Canadian-Americans, to file taxes with the IRS every year, regardless of where they live.

    There are roughly a million Americans in Canada – many with little or no ties to the United States. An increasingly onerous U.S. crackdown on Americans who hide money offshore is forcing many of them out of the shadows.

    The new procedures go into effect Sept. 1.

    IRS Commissioner Doug Shulman called the special amnesty a “common-sense” way for people to “get current with their tax obligations and resolve pension issues.”

    Tax experts said the measures go a long way to resolving an issue that has caused a wave of angst among Americans in Canada and a flood of business for lawyers and accountants.

    “It’s a good start and it’s particularly good for about 90 per cent of Americans in Canada, most of whom will fall into the low risk category,” said Kevyn Nightingale, an accountant with MNP LLP in Toronto.

    “I would expect a lot of people to come forward using this approach.”

    But individuals who don’t owe much tax, but have closely held partnerships, investment companies or trusts aren’t likely to benefit, he added.

    A 56-year-old Ottawa woman who has lived in Canada since her family moved here when she was nine plans to take advantage of the amnesty. But she’s not happy about it and complained that the United States has no right impose tax obligations on people who no longer have any connection to the country.

    “I’ll do it. I want this out of the way and become free an clear,” said the woman, who declined to be identified. “I still think it’s unfair to get people all over the world so upset when they don’t owe anything.”

    The IRS initially promised details of the amnesty late last year.

    But U.S. officials have struggled internally over whether people who haven’t filed for years deserve any special leniency.

    The IRS also announced special “streamlined” procedures for reporting certain foreign retirement accountant, mentioning specifically Canadian Registered Retirement Savings Accounts. Individuals will be allowed to retroactively elect to defer income in those accounts.

    Without the amnesty, Americans who haven’t filed their taxes and other IRS forms face penalties totalling tens of thousands of dollars per year and risk criminal prosecution.