IRS Announces Efforts To 'Help' US Taxpayers Overseas
Friday, June 29, 2012
The United States Internal Revenue Service (IRS) has announced a plan to help
US citizens residing overseas catch up with tax filing obligations, and also provide
assistance for people with foreign retirement plan issues.
"Today we are announcing a series of common-sense steps to help US citizens
abroad get current with their tax obligations and resolve pension issues,"
said IRS Commissioner Doug Shulman.
He announced the IRS will provide a new option to help current non-residents
including, but not limited to, dual citizens, who have not 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 new procedure will go into effect on September
The IRS is aware that some US taxpayers living abroad have failed to file US
federal income tax returns or Reports of Foreign Bank and Financial Accounts
(FBARs) on time. 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 USD1,500 or less in tax for any of the
In general, the risk level will rise as the income and assets of the taxpayer
rise, if there are indications of sophisticated tax planning or avoidance, or
if there is material economic activity in the US. Additional risk factors would
include any additional history of non-compliance with US tax law and the amount
and type of US source income.
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 US 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.
Any taxpayer seeking relief for failure to timely elect deferral of income
where deferral is permitted by relevant treaty will be required to submit a
statement requesting an extension of time to make an election to defer income
tax and identifying the pertinent treaty position.
For relevant Canadian plans, an information return must be submitted for each
tax year and description of the type of plan covered by the submission along
with a statement describing the events that led to the failure to make the election,
the events that led to the discovery of the failure, and, if the taxpayer relied
on a professional advisor, the nature of the advisor’s engagement and
Taxpayers using the newly-announced procedures 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. Payment of
any federal tax and interest due must accompany the submission.
Submissions from taxpayers that present a 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.
In fact, taxpayers who are in a situation where they are concerned about the
risk of criminal prosecution are advised that the new procedure will not provide
protection from criminal prosecution if the IRS and Department of Justice determine
that the taxpayer’s particular circumstances warrant such prosecution.
Therefore, it is said that taxpayers concerned about criminal prosecution should
be aware of and consult their legal advisers about the Offshore Voluntary Disclosure
Programme, announced on January 9, 2012, which offers another means by which
taxpayers with undisclosed offshore accounts may become compliant.