Can U.S. Naturalization Be Revoked for Tax Violations?

Can Your Naturalization Status Be Revoked for Tax Violations?

Can Your Naturalization Status Be Revoked for Tax Violations?

When a person wants to become a U.S. citizen and begins the naturalization process, it is understandable that they may become nervous about assessing whether they have been in U.S. tax compliance sufficient to qualify as a U.S. citizen. Unfortunately, with all the fear-mongering that occurs online, taxpayers are led to believe that even minor mistakes in their tax filings will result in their citizenship application being rejected or revoked; that is not true. Just because the tax return filing is not perfect does not make it non-compliant. And, the IRS does not have an unlimited amount of time to go after taxpayers who have made mistakes in their tax returns — unless there are issues involving civil fraud or non-filing. Let’s look at a few different examples of tax compliance, citizenship, and denaturalization.

*For all examples, please note that the Taxpayers are U.S. persons for tax purposes who have not made any treaty elections to be treated as a Non-Resident Alien (NRA). Also, these examples are for illustrative purposes only, and Taxpayers should consult with a Board-Certified Tax Law Specialist if they have specific questions about their reporting requirements and not rely on this article for legal advice.

Tax Compliance and Citizenship Example

Adam is a lawful permanent resident who is seeking to become a U.S. citizen. When he begins filling out his N-400, he reviews his prior tax returns and realizes that he missed a few dollars of interest income on a tax return several years ago. This was completely unintentional, and he does not currently owe any taxes. Even though Adam may have made a few small mistakes on a prior tax return, this would not be sufficient for his naturalization application to be rejected.

Tax Non-Compliance and Citizenship

Amanda is a lawful permanent resident who is seeking to become a U.S. citizen. A few years ago, she began earning a significant amount of foreign investment money but was unaware that she was required to report this information on her U.S. tax return. The money was generated overseas, so she thought that because it was income generated in a foreign country, it did not apply to her current tax return. Since the amount of income is significant, Amanda would want to consider one of the offshore disclosure programs to get into compliance before pursuing her naturalization– or if she has already begun the naturalization process, she would want to amend the returns and enter offshore disclosure before having her interviews. That is because while it was unintentional, having a significant amount of unreported income may lead an immigration agent to believe that it was done intentionally, even if it wasn’t, and Amanda does not want to take any chances.

Naturalization/Denaturalization for Tax Non-Compliance

Becoming a naturalized citizen has many benefits. For example, when a person is a green card holder, it is easier for the US government to simply deport them when they have committed a serious crime or tax violation than when the taxpayer becomes a U.S. citizen. Once a person is a citizen, it becomes much more difficult for the U.S. government to denaturalize the individual for tax noncompliance, but some instances can still lead to immigration issues for naturalized citizens. In general, for the US government to denaturalize a U.S. citizen, the tax crime would have to be relatively significant and typically involve moral turpitude. For example, if during a tax investigation the taxpayer states that they believed all of their prior tax returns were filed accurately but then it turns out that the taxpayer knew they had a significant amount of unreported income and filed false returns to artifically reduce their income/tax liability, this could potentially lead to a criminal investigation, indictment and conviction — which could ultimately lead to denaturalization if it is determined that the taxpayer acted with fraud or with the intent to evade. In fact, the Taxpayer does not even have to have been convicted of the crime, as set forth by USCIS: (see below)

Concealment of Material Fact or Willful Misrepresentation

The N-400 has multiple questions regarding tax crimes. It is important to note the language used in the N-400 application. For example, one question asks:

• • • “Have you EVER committed, agreed to commit, asked somone else to commit, helped commit, or tried to commit a crime of offense for which you were NOT arrested?

Thus, even if a person was not convicted of a crime, they must still identify the violation on their application. As provided by the USCIS: “A person is subject to revocation of naturalization if there is deliberate deceit on the part of the person in misrepresenting or failing to disclose a material fact or facts on his or her naturalization application and subsequent examination. In general, a person is subject to revocation of naturalization on this basis if:

• • • The naturalized U.S. citizen misrepresented or concealed some fact;

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    • The misrepresentation or concealment was willful;

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    • The misrepresented or concealed fact or facts were material; and

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    • The naturalized U.S. citizen procured citizenship as a result of the misrepresentation or concealment

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    • • This ground of revocation includes omissions as well as affirmative misrepresentations. The misrepresentations can be oral testimony provided during the naturalization interview or can include information contained on the application submitted by the applicant. The courts determine whether the misrepresented or concealed fact or facts were material. The test for materiality is whether the misrepresentations or concealment had a tendency to affect the decision. It is not necessary that the information, if disclosed, would have precluded naturalization.”

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Late-Filing Disclosure Options

If a Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them.

*Below please find separate links to each program with extensive details about the reporting requirements and examples.

Streamlined Filing Compliance Procedures (SFCP, Non-Willful)

The Streamlined Filing Compliance Procedures is one of the most common programs used by Taxpayers who are non-willful and qualify for either the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures.

Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)

Taxpayers who are considered U.S. residents and file timely tax returns each year but fail to report foreign income and/or assets may consider the Streamlined Domestic Offshore Procedures.

Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)

Taxpayers who are foreign residents may consider the Streamlined Foreign Offshore Procedures which is typically the preferred program of the two streamlined procedures. That is because under this program Taxpayers can file original returns and the 5% title 26 miscellaneous offshore penalty is waived.

Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)

Taxpayers who only missed the FBAR reporting and do not have any unreported income or other international information reporting forms to file may consider the Delinquent FBAR Submission Procedures — which may include a penalty waiver.

Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)

Taxpayers who have undisclosed foreign accounts and assets beyond just the FBAR — but have no unreported income — may consider the Delinquent International Information Return Submission Procedures. Before November 2020, the IRS was more inclined to issue a penalty waiver, but since then this type of delinquency procedure submission has morphed into a reasonable cause request to waive or abate penalties.

IRS Voluntary Disclosure Procedures (VDP, Willful)

For Taxpayers who are considered willful, the IRS offers a separate program referred to as the IRS Voluntary Disclosure Program (VDP). This program is used by Taxpayers to disclose both unreported domestic and offshore assets and income (before 2018, there was a separate program that only dealt with offshore assets (OVDP), but that program merged back into the traditional voluntary disclosure program (VDP).

Quiet Disclosure

Quiet disclosure is when a Taxpayer submits information to the IRS regarding the undisclosed foreign accounts, assets, and income but they do not go through one of the approved offshore disclosure programs. This is illegal and the IRS has indicated they have every intention of investigating Taxpayers who they discover intentionally sought to file delinquent forms to avoid the penalty instead of submitting to one of the approved methods identified above.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.

Contact our firm today for assistance.