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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 1, 2012.

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 covered years.

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 advisorís engagement and responsibilities.

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 taxpayerís 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.