IRS FAQ for IRS New Expatriation Relief – Questions & Answer FAQ
In early September, the IRS implemented a new program to assist with certain person who have previously, and/or are seeking to expatriate.
IRS FAQ for IRS New Expatriation Relief
Under these new (limited) procedures, the IRS is not requiring applicants who meet the qualifications of the program, to have to pay tax liabiltiies (or penalties).
Not everyone who wants to, will qualify for the program.
There are some complicated issues involving, foreign tax credits, foreign earned income exclusions, foreign tax rates, etc. — but here are some common questions and answers to assist with the basics.
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Questions & Answers (FAQ) IRS Relief Procedures for Certain Former Citizens
The following is a summary of important aspects of the ” IRS Relief Procedures for Certain Former Citizens”
Who Can Apply?
In order to meet the requirements for the program, the individual must meet the following requirements:
You have relinquished your U.S. citizenship after March 18, 2010.
You have no filing history as a U.S. citizen or resident;
You did not exceed the threshold in IRC 877(a)(2)(A), related to average annual net income tax for the period of 5 tax years ending before your date of expatriation;
Your net worth is less than $2,000,000 at the time of expatriation and at the time of making your submission under these procedures;
You have an aggregate total tax liability of $25,000 or less for the five tax years preceding expatriation and in the year of expatriation (after application of all applicable deductions, exclusions, exemptions and credits, including foreign tax credits, but excluding the application of IRC 877A and excluding any penalties and interest).
You agree to complete and submit with your submission all required Federal tax returns for the six tax years at issue, including all required schedules and information returns. See FAQs 11, 12, and 16 for information on how to complete these returns.
Only taxpayers whose past compliance failures were due to non-willful conduct may use these procedures. All eligibility criteria must be strictly met to use these procedures.
Are You Worth More than $2M?
The individual must have net assets worth less than $2M. This is to coincide with the Exit Tax, which has a separate $2M requirement.
Have You Previously Filed 1040 Tax Returns?
This is one of those rare occasions in which the IRS requires that the individual submitting to the program has been a non-filer in prior years.
What if You Filed Past 1040NR?
The concept of citizenship under U.S. tax law is complex. The IRS understands, and therefore provides that ” If a person was filing 1040NR, “under the good faith belief that you were not a U.S. citizen, you may use these procedures.
What if Your Prior Renouncement was Not Done Properly?
The IRS will allow individuals to use this program to fix a previously incorrect renouncement.
Yes, so long as your date of relinquishing U.S. citizenship was after March 18, 2010. Specifically, the date reflected on your Certificate of Loss of Nationality of the United States, Form DS-4083, in the field “That: he/she thereby expatriated __self on (Date) ______ under the provisions of Section…” must be after March 18, 2010. Or, the date on the copy of the court order described in IRC 877A(g)(4)(D) must be after March 18, 2010. See FAQ 11, item 1.
How Much Can You Owe in Past Taxes?
In order to qualify for the Program, an expatriate’s tax liability does not exceed a total of $25,000 for the six years in question.
How Many Past-Years Worth of Tax Returns do You File.
Unlike the Streamlined Program (which requires 3-years of amended or original returns) or Voluntary Disclosure (VDP aka Post-OVDP) which requires 6-years of amended returns, the IRS Relief Procedures for Certain Former Citizens requires “5-Years” of outstanding U.S. tax returns, including all required schedules and information returns, for the five years preceding and their year of expatriation.
Common information returns, include: FBAR, Form 8938, Form 3520-A, Form 5471, Form 8865
Dual-Status Tax Return in Current Year (6-Years in Total)
An applicant must file 5-years of prior returns, and then a current year dual-return, for a total of 6-years of tax and informational reporting filing:
“Eligible individuals wishing to use these relief procedures are required to file outstanding U.S. tax returns, including all required schedules and information returns, for the five years preceding and their year of expatriation,” the total submission requires 6-years.
“You agree to complete and submit with your submission all required Federal tax returns for the six tax years at issue, including all required schedules and information returns. See FAQs 11, 12, and 16 for information on how to complete these returns.
You Still have to File FBARs and other Informational Returns
The IRS just loves itself some FBARs. And, if you are going to submit under these procedures, then FBAR filing is still required for compliance.
Although filing FBARs is not an eligibility criterion, if you have an FBAR filing requirement, you should file them.
If you are eligible to use these procedures and file FBARs before your submission or contemporaneously with your submission, the IRS will not assert FBAR penalties.
If you fail to file FBARs, the IRS may assert FBAR penalties if your submission is selected for examination.
If you have an FBAR filing requirement, you must file FBARs electronically with FinCEN. On the cover page of the electronic form, select “Other” as the reason for filing late. An explanation box will appear. In the explanation box, enter “Relief for Certain Expatriates procedures.”
Your Non-Compliance Must have been Non-Willful
This program will only apply to expatriates who were “non-willful.” There is no bright-line test yet to determine willful vs. non-willful. Rather, it is based on a “Totality of the Circumstances” test.
You will Received a Tax & Penalty Waiver
Unlike the Streamlined Foreign Offshore Procedures, in which a person is relieved from paying penalties on FBAR and FATCA assets, but still must pay taxes due — under this program, a person will be relieved from paying taxes and will avoid penalties.
Can my Estate or Corporation file for these Procedures?
These procedures are limited to individuals. “Estates, trusts, corporations, partnerships and other entities may not use these procedures.”
Can I Apply Foreign Tax Credits and Deductions
Yes. As provided by the IRS:
“and may claim all available deductions and credits, including foreign tax credits, to the extent permitted”
But, depending on the facts and circumstances — especially the tax rate in the foreign country — an individual may or may not still have a tax liability greater than $25,000.
How Will I know if I am Accepted?
Yes. Unlike the Streamlined Foreign Offshore Procedures, the IRS will send a notification of acceptance:
Yes. After reviewing your submission to confirm that you meet the eligibility criteria, the IRS will send you a letter notifying you that your submission was received and complete.
Can I Change my Mind at a Later Date?
The IRS will not let you go back — the decision is irrevocable
No. Unless a finding of loss of U.S. citizenship is vacated by the Department of State, relinquishing U.S. citizenship is irrevocable. There is no procedure for retracting an income tax return signed under penalties of perjury, though taxpayers usually can file amended tax returns.
This is why it is important that all applicants first speak with experienced counsel before submission.
Interested in Filing under IRS Relief Procedures for Certain Former Citizens?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.