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.
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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
I’d give that gift horse a good look in the mouth before doing anything.
I really can’t work out what this is all for. Why would the IRS want paperwork from minnows?
Its just the IRS being silly. Once you are no longer a US citizen, any and all filing obligations permanently cease. (Assuming no US assets, of course.) Why on earth would anyone who just went through hell to get free of the IRS want to re-engage? Entering that program would be just inviting the IRS to find a problem and try to stick it to you with fines or penalties.
Those who have renounced are long gone, regardless of what paperwork they have or haven’t filed. There would be absolutely no point in reopening the can of worms. It just shows how clueless the IRS is about expatriation. Yet another case of those who try to comply are the ones who are most at risk.
Beware, same endorphin release enticement offered by scratch off lottery! (feel good stuff), until you sign “Under Penalty Of Perjury” of course, and then the IRS has your address, bank information and phone number (Attorney’s will indicate you do NOT have to provide phone numbers) wherever you are living in the World,….. Incitement at a cost!
@ BB
Is it a gift horse or a trojan horse? Remember who ultimately decides willful or non-willful. Qui bono? Well certainly the US government gets even more data for its data banks which seem to have an infinite amount of room for storage. The IRS gets a heavier workload but maybe it will wrangle a larger budget to handle that burden. Those who qualify for the new offer (it’s a pretty narrow set of criteria) and then enter the system get the headaches of preparing 6 years of paperwork but if all goes well (non-willful plea accepted, under the varius threshholds, etc.) they will be all square with the IRS without having enriched the US Treasury. However that paperwork can be difficult so in come the condors to “help” and that’s who I think will “bono” the most.
There’s tax relief. But what about FBAR?
FAQ 18 of the Relief Procedures:
“…if you have an FBAR filing requirement, you should file them . . . . If you fail to file FBARs, the IRS may assert FBAR penalties….”
Question: The program is only available to those who have *never* filed a 1040, but requires 6 years of filing, presumably with 1040s. I guess you’d…register or something at the outset?
And if you don’t have an SSN, how would they know if you’ve filed or not?
For that matter, how far back do IRS records go anyway? Back to before they were computerized…?
@Shovel
No FBAR penalties, apparently; similar to streamlined. (From Q18: “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.”)
@Zla’od
That this does not require an SSN comes as a bit of a pleasant surprise. I have to assume it means that they won’t even look at these things. Someone who had filed in the past but who had a relatively non-unique name (John Smith or whatever) could just file this way and assume they’d never be able to figure it out. There aren’t going to be many data points to match up: name and address, date and place of birth are all that’s needed to enter this program. (From the ID requirements listed under Q11: “Identification: Copy of (a) valid passport OR (b) birth certificate and government issued identification.”) Place of birth is not required for a normal 1040, I assume, so the only way they could detect fraudulent use of this program is by somehow matching name plus date and place of birth against passport records, then if the passport recorded an SSN, go back and look for old returns. But even then it’s not a definitive match, as you could easily have two J. Christs born 25 December 1950 in Bethlehem, PA. One assumes that there’s no reason for them to do this level of digging.
Overall, I really can’t figure out what to make of this. What’s in it for the IRS? Lots of paperwork (without SSNs even) for, by definition, no reveneu. It can’t be altruism, can it? Or is there some grand Machiavellian scheme at work here?
In any case it’s probably not going to be very popular, because if you’ve made the decision to renounce without compliance, what incentive do you have to deal with all the paperwork when there’s no gain other than the sense that you’re square with Uncle Sam. But it might help other who are on the fence about renouncing because they either faced tax bills or feared the consequences of renouncing without compliance.
“Many in this [target] group may have lived outside the U.S. most of their lives and not been aware that they had U.S. tax obligations.”
So nobody who is ignorant of the U.S. tax and penalty system, but then has filed specifically to “get right with their taxes”, has ever been surprised later to find that the (non-tax) FBAR exists?
….can’t happen.
Everyone needs to find their own way out, very carefully, and move on. The IRS and US government never makes things simple and easy, in my experience. Extraterritorial taxation has never been a fair game. I’m glad to have moved on but sympathize with others who have a more complicated situation. Hope the new procedures help someone but always be wary when dealing with this mess.
@PatCanadian
Which is why doing nothing is probably still the safest course of action for duals-from-birth in Canada, where banks neither care about how one answers citizenship questions, nor restrict services to those who affirm US citizenship.
But let’s not reopen that debate…
@Shovel
Not sure of your point there. I think this program assumes ignorance of FBARs, because it allows for contemporaneous filing without penalty.
Whereas previous FBAR submission might indicate awareness of other filing requirements and make one ineligible on grounds of wilfulness.
What I think they are suggesting though is that if you enter this program and filed returns but not FBARs, you’d potentially be subject to (uncollectible) penalties if they managed to figure it out.
When I renounced I had to sign an “Information Acknowledgement Form” to confirm many things including that I was aware that I must contact the IRS regarding any outstanding taxes. If I didn’t do that then can I still claim non-willfulness after having signed the form? I’m sure that many people who renounced had to sign a similar statement.
You also have to swear or affirm something similar on the DS-4081 which was item 10 on mine.
It’s an odd ‘offer’, for sure, and would need scrutiny for anyone considering. OTOH I know several duals (in Canada), non-filers, have SSNs, who are doing nothing, it’s ever harder to stay under the radar. (That tax compliance box on their US passport renewals.) They live under high anxiety. This •might• be the way for them to shed their US citizenship, which each would like to do.
A friend of one of them hired a compliance condor and spent $50,000 so they panic when they hear that number. Though I have not seen the forms, if they could be completed by an accountant, not a pricey compliance specialist, these Relief Procedures could work.
@ John,
Re:
I don’t know the wording of the questionnaire you received, but I’ll refer to the DS-4081, which you also mentioned.
I don’t think that having signed a 4081 would indicate “wilfullness.” Since everyone who renounces has to sign the 4081, that would mean that all renunciants are aware they may have a tax obligation. But if signing a 4081 were to make a person deemed “wilful,” no one would be eligible. So, I’d presume that signing the 4081 is not a barrier to entry because it wouldn’t make sense.
I don’t think that sentence about contacting the IRS is a big deal because the person already acknowledges, in the first sentence, that they’re aware they may have a legal obligation to file/pay tax. (“My renunciation/relinquishment may not exempt me from United States income taxation.”)
Re the second sentence, (“With regard to United States taxation consequences, I understand that I must contact the United States Internal Revenue Service,”) I’ve long thought that sentence is basically DoS saying, “To find about tax consequences, ask IRS, not us. And if you ever get in trouble with the IRS, you can’t get tell them it’s because we gave you bad tax advice, cause we don’t give tax advice.” DoS is very big on NOT getting into tax matters, any tax obligation is covered by the first sentence of Q. 10, and there’s no obligation for any renunciant to “contact” the IRS for, say, information. One may have a legal requirement to file/pay taxes (a form of “contacting,” I guess), but that’s covered in the first sentence.
Long story short, I think the first sentence of Q.10 is the key one. And presumably, in my 2c, IRS won’t consider having signed a 4081 a barrier to the program because doing so would seem to prevent anyone from entering the program. Not that they’re noted for logic . . .
It is possible (though of questionable legality) to renounce and NOT turn in a 4081.
A recent comment on Expatforum makes sense to me: this is a response to EU grumbling about FATCA and, particularly, the problem of Accidentals not easily obtaining SSNs.
@Duchesse
I don’t think it’s getting harder to stay under the radar in Canada. It’s been four or five years now since banks began asking nationality questions, but they are still content to rely on self-certification without ID showing place of birth. Meanwhile the IRS is not actively seeking the non-compliant. The US passport application does not have a tax compliance box (that appeared briefly about ten years ago, then disappeared) but requests an SSN, or all zeroes. One can also refrain from using a US passport.
Your friends could use this program to renounce and exit, and make it cheaper and easier if they use “simplified” data to file very basic returns. But they could have used this approach already, or simply renounced without compliance. The main benefit to the new relief program is the $25k “allowance” for taxes owed, and the ability to file without an SSN.
@Zla’od
The point isn’t to renounce, the point is to pay for and receive a CLN.
The IRS makes an ominous threat in Question 8 of the FAQs:
“If you are not eligible to make a submission under these procedures and still make a submission, the IRS will process your returns using normal processing procedures. You will be liable for all taxes, penalties, and interest associated with the submission.”
In other words, the IRS waits until you make the submission before they rule on whether or not you are eligible. Sounds like a trap to me.
Well if you’re rejected, then you’ll experience what others have done getting into compliance BEFORE renouncing. It’s interesting that the IRS is willing to cut breaks for non-citizens over citizens. This amnesty should be available to those who wish to come into compliance and retain their US citizenship. Instead, they are encouraging people to renounce.
@ maz57
Sounds like a trap to me too. That’s why I wrote that one should remember who ultimately decides willful or non-willful. Proving non-willfulness to the IRS could be as difficult as proving any other negative.
@ Ron Henderson
Banking experiences in Canada will vary I’m sure but when my husband offered to show his bank his CLN several years ago they said it wasn’t necessary. (It’s one of the major Canadian banks too.) Recently he opened a US dollar account there in which to deposit his SS cheques … still no request to see that CLN.
Keith Redmond recently tweeted …
“This is a BS solution. Laughable! Does not help at all!”
Keith is a strong and well-informed advocate for Accidental Americans so I rather trust his judgment on this. Does anyone know if he has said anything more on the subject on his facebook page? (It’s a closed group and I don’t do facebook.)
@ Zl’aod,
I don’t recall hearing of renouncing without a DS-4081 and my understanding is that State Dept requires having a completed 4081 and 4080 on file before issuing a CLN. However, I saw you mentioned it being possible to renounce without doing a 4081. Do you know through which consulate/s this occurs?
As far as accidental go, inspite of all the gifts, there are stll returns to file.
Instead of trying to figure out what the IRS is up to. One should consider that, all they want is ” what’s in your pocket” – as one well known credit card ad says. For that matter , there is nothing mysterious here.
Next week,another ad ,to encourage another subset of expats to part with their money.