IRS Has a New Program for Expat Americans with Delinquent Taxes
On June 18, 2014, the IRS eased the burden on expats and broadened the Streamlined Procedure. This program was originally announced in 2012, allowing delinquent taxpayers living abroad an opportunity to avoid the penalties and fees by coming into compliance. The latest changes make the already popular program even better.
The new program has broadened eligibility criteria and eliminated all penalties related to late filing/late payment.
Additionally, this program may be used for filing amended returns to claim retroactive relief on qualified foreign pension plans eligible for tax deferral.
Comparison of the program features - 2012 vs 2014
|2014 Procedure||2012 Procedure|
|Non-residency requirements for U.S. citizens or lawful permanent residents||Any one or more of the most recent three years for which the U.S. tax return due date has passed, the individual was physically outside the United States for at least 330 full days||Must have lived outside of the United States January 1, 2009, and who have not filed a U.S. tax return during the same period|
|U.S. tax obligations||No limit||Not to exceed $1,500 per year|
|Risk factors determination||Eliminated||Subject to IRS assessment for program qualification|
|Amended returns||Allowed||Not accepted|
|Penalties||Eligible individuals who comply with all of the instructions will not be subject to failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties, or FBAR penalties||For returns determined to be high risk, failure to file and failure to pay penalties and FBAR penalties may be imposed in accordance with U.S. federal tax laws|
|Delinquent FBAR Submission Procedures
||Taxpayers who do not need to file delinquent or amended tax returns to report and pay additional tax, but who have not yet been contacted by the IRS about the delinquent FBARs should file the delinquent FBARs and include a statement explaining why the FBARs are filed late
|Coordination with Previous Streamlined Procedure Programs||A taxpayer who has initiated participation in the 2012 Streamlined Filing Compliance Procedures prior to July 1, 2014, and has not already been notified of a risk determination will not receive correspondence related to their risk determination and the returns will be processed under the new program rules||N/A|
|Coordination with OVDP||A taxpayer eligible for the new Streamlined Procedure who has submitted a voluntary disclosure letter under the OVDP prior to July 1, 2014, but who does not yet have a fully executed OVDP closing agreement, may request treatment available under the streamlined procedures||N/A|
Participation in the Program Will Entail
- Taxpayers will be required to file all back taxes and relevant documentation for the previous 3 years and FBAR reports for 6 years.
- Under the New Procedure, the taxpayer must certify that the failure to report all income, pay all tax, and submit all required information returns (including the FBAR) was due to “non-willful conduct”, and must meet a “non-residency” requirement.
- Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.
Under these new procedures eligible taxpayers who comply with the procedures will not be subject to failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties, or FBAR penalties unless the returns are selected for audit and upon audit a determination is made that the original tax noncompliance was fraudulent or that the FBAR violation was willful.
- This dramatic change by the IRS in making the voluntary program broader, comes after Americans abroad have shown that their foreign accounts are legitimate and should not be penalized in the extreme for a technical reporting failure.
Prior to this new change, taxpayers participating in this program were grouped by ‘risk’. If you were determined to be low risk, you were accepted into the program, and those who were ‘high risk’ were examined closer. No longer! The streamlined questionnaire is gone and the $1,500 tax due per year cap has been removed. This is an enormous change and opens the door for many more taxpayers to come into compliance without fear of penalties.
How We Can Help You Join This Program
We have already helped over a thousand overseas Americans file overdue tax returns and become compliant with the IRS. We are currently helping an average of 10 clients a month with this service, without any of them incurring problems.
Now - you may ask yourself “Why should I hire an accountant to help with this undertaking? Isn’t IRS really a bunch of nice individuals who want to make my life easy?”
Even though IRS may appear magnanimous in offering this new program, do not be misled! Judging by experience of those who blindly trusted IRS and entered OVDI without expert guidance (see this scathing report by National Taxpayer Advocate on this matter), this would be a mistake. We’ve written extensively (see Why Work with an Expert) as to why expats need a professional to prepare their taxes - in short IRS’ job is to extract maximum amount of tax for the government. You need someone by your side whose job is to protect you and ensure that you pay minimum amount of tax. Would you go to court where prosecution gives you legal advice?
Now - we happen to think that this program is a good one. But this does not mean that you should throw caution to the wind and start by preparing your own tax forms - opening yourself up to risk of doing it wrong.
Our Special Package
The regular price for Streamlined Procedure services purchased separately:
|3 Years of Federal Tax Returns||350 * 3 = $1,050|
|6 Years of FBARs||75 * 6 = $450|
|Analysis of situation and applicability for the program||$150|
|We are offering a special package price of $1,200 - saving you 27%.|
|Please note - the package above consists of preparation & filing of the tax & FBAR forms.|
|Preparation of the IRS Certification by U.S. Person Residing Outside of the U.S statement for the Streamlined Procedure costs||$300|
|Preparation of the IRS Certification by U.S. Person Residing in the U.S statement for the Streamlined Procedure costs||$500|
Same discount applies if your income is over $100,000 - package then costs $1,400
We can also prepare and mail to your bank a U.S. Paid Preparer Certification and Notification certifying your tax compliance status - this costs $150.
Now is the Perfect Time
Given the attention that the US government is starting to bring to this issue (see this article we wrote that explains why it’s becoming more tenuous for expats to avoid filing), now is a perfect time to file those past due returns and stop worrying about IRS finding you.