From ‘Accounting Today‘ September 6, 2019:
The Internal Revenue Service outlined new procedures Friday to allow some expatriates who have relinquished their U.S. citizenship the chance to comply with their U.S. tax and filing obligations and in turn qualify for relief from back taxes, penalties and interest.
The Relief Procedures for Certain Former Citizens will apply only to individuals who haven’t filed U.S. tax returns as U.S. citizens or residents, owe a limited amount of back taxes to the U.S. government ($25,000 in the past six years), and have net assets of less than $2 million. Only those taxpayers whose previous compliance failures were non-willful can take advantage of the new procedures, according to the IRS. Many in this group may have lived outside the U.S. most of their lives and not been aware that they had U.S. tax obligations.
A post for Brock readers to analyze and discuss.
As well, analysis / commentary here:
IRS provides limited tax relief for certain individuals renounced(ing) after March 18, 2010
Update – My thoughts the Morning After – September 7, 2019:
After having digested this for a day (it was announced the afternoon of September 6/19, I offer the following thoughts:
I think that this IRS announcement/program has value. It may be that those who have renounced would NOT want to come into compliance (although there are certainly some who would – just to bring closure). But, the IRS announcement makes clear that this procedure is available to those who have not yet renounced/relinquished and wish to do so in the future. The point is that these future relinquishers can:
1. Come into tax compliance and have up to $25,000 USD in tax forgiven; and
2. Come into tax compliance without getting a Social Security number. This has the potential to be enormously helpful to a lot of people (but this is a minority view). It’s a way to make the compliance/renunciation process easier and less expensive (tax forgiveness) than it has been to date.
Of course, this will anger the thousands who have previously come into compliance, paid taxes and gone to the trouble of getting a Social Security number.
But, I can so how this new program has value.
Now on to the post as originally written …
Breaking news – just released today – September 6, 2019
From Jack Townsend:
Here are the Highlights from the first article:
New Procedure. On Sept. 6, 2019, the Internal Revenue Service (IRS) announced an important new procedure to enable certain non-compliant U.S. citizens who relinquish their U.S. citizenship to become U.S. tax compliant.
Primary Targets. “Accidental Americans” who were unaware of their U.S. tax obligations.
Eligibility and Filings. In general, 1) past compliance failures were non-willful, 2) past tax liability not in excess of $25,000 for the five years prior to, and the year of, expatriation and 3) less than $2 million in net assets as of expatriation date. Eligible taxpayers must file U.S. tax returns, including all required schedules, international information returns and Foreign Bank Account Reports (FBARs), for the five years preceding and the year of expatriation.
Benefits and Takeaway. Qualifying taxpayers become compliant without having to pay any past due U.S. taxes, penalties or interest and avoid classification as a “covered expatriate,” a designation that could result in extremely detrimental tax consequences. For qualifying expatriates, the new procedure provides a taxpayer-friendly pathway to U.S. tax compliance, thereby avoiding potentially detrimental U.S. tax consequences and adverse reputational risk.
I wish one of these commentators would take the time to explain the “extremely detrimental tax consequences” of covered expatriate status, for a person with no US assets, income or heirs.
The reason none of them explain those “extremely detrimental tax consequences” is because there are none.
I would say for 99% of those eligible this is not worth the bother. There may be 1% to whom it makes sense. From my Streamline experience, an accountant who knows what he’s doing re PFICs, foreign currencies, etc. costs about $3k per return, that’s $15K for five years. Add a couple of hundred hours of your own time to obtain and organize records and deal with the IRS, getting up at 3 am local time to speak to someone at the IRS (because of the time difference) maybe a few hours with an expert lawyer in this area, say 10 hours (if you do most of the work and research yourself) at $800/hour is another $8K.
Back in the days of OVDP, many took the course of “forward compliance” and waiting out the statute of limitations for past behavior. This worked for people who did not have huge amounts of assets or income, even if they were US residents. Worked even better for nonresidents.
Again, 1% of people may have exceptional circumstances under which the IRS initiative would make sense.
So one should be very careful of sharks who use this as a way to drum up business.