Posted on May 21st, 2020 in Cross-Border Tax, Domestic Tax

U.S. EXPATRIATES: New Relief Procedures

map of USA with USA flag inside map

On September 6, 2019, the IRS announced Relief Procedures for Certain Former Citizens, a new process to facilitate eligible individuals in becoming compliant with their U.S. tax obligations, in conjunction with renouncing their U.S. citizenship (IR-2019-151). There was no announced specified termination date; however, a closing date will be announced in the future.

Eligible individuals will be required to file U.S. tax returns, including all relevant disclosure filings, including financial account disclosures, for the year they renounce their citizenship and the five preceding years. Eligibility criteria include the following:

  • Only individuals (not corporations, trusts, partnerships, estates or other entities) are eligible.
  • Past non-compliance must be non-willful.
  • The individual must never have filed as a U.S. citizen or resident (an FAQ question indicated that prior filing of a 1040NR return, in the belief the individual was neither a resident nor a citizen will not disqualify them).
  • The individual’s net assets cannot exceed $2 million U.S. at either the date of relinquishing citizenship or the date of the submission under these procedures, and their average net income tax for the five years preceding loss of citizenship cannot exceed an inflation-adjusted amount ($168,000 U.S. for 2019).
  • Taxes payable for the six years required to be filed cannot exceed $25,000 in aggregate after foreign tax credits and before penalties or interest are calculated. This does not include the “exit tax” which might apply outside the procedure, but is also not reduced for any U.S. withholdings.
  • The individual must have relinquished U.S. citizenship after March 18, 2010.
  • The individual must obtain a Social Security Number, if they do not already have one.

Assuming these criteria are met, no penalties or interest will apply, and any taxes payable for the six years, up to the $25,000 maximum, will be waived entirely. The individual will also be exempt from the “covered expatriate” rules, which could otherwise impose additional tax and filing requirements. However, the IRS will process submissions by non-eligible individuals under the ordinary rules, potentially attracting significant interest and/or penalty charges.

ACTION ITEM: Often, children of U.S. parents are surprised to learn that they too are considered U.S. persons and subject to U.S. taxation. This program may assist them in correcting their affairs and obligations.

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Article originally published in: Tax Tips & Traps 2020 First Quarter – Issue 129