Liberty and justice for all United States persons abroad

The Isaac Brock Society

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Here it is. Was this what you were waiting for?

 

IR-2012-65, June 26, 2012

WASHINGTON — The Internal Revenue Service today announced a plan to help U.S. citizens residing overseas, including dual citizens, catch up with tax filing obligations and provide assistance for people with foreign retirement plan issues.  

“Today we are announcing a series of common-sense steps to help U.S. citizens abroad get current with their tax obligations and resolve pension issues,” said IRS Commissioner Doug Shulman.

Shulman announced the IRS will provide a new option to help some U.S. citizens and others residing abroad who haven’t been filing tax returns and provide them a chance to catch up with their tax filing obligations if they owe little or no back taxes. The new procedure will go into effect on Sept. 1, 2012.

The IRS is aware that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs). Some of these taxpayers have recently become aware of their filing requirements and want to comply with the law.

To help these taxpayers, the IRS offered the new procedures that will allow taxpayers who are low compliance risks to get current with their tax requirements without facing penalties or additional enforcement action. These people generally will have simple tax returns and owe $1,500 or less in tax for any of the covered years.

The IRS also announced that the new procedures will allow resolution of certain issues related to certain foreign retirement plans (such as Canadian Registered Retirement Savings Plans). In some circumstances, tax treaties allow for income deferral under U.S. tax law, but only if an election is made on a timely basis. The streamlined procedures will be made available to resolve low compliance risk situations even though this election was not made on a timely basis.

Taxpayers using the new procedures announced today will be required to file delinquent tax returns along with appropriate related information returns for the past three years, and to file delinquent FBARs for the past six years. Submissions from taxpayers that present higher compliance risk will be subject to a more thorough review and potentially subject to an audit, which could cover more than three tax years.

The IRS also announced its offshore voluntary disclosure programs have exceeded the $5 billion mark, released new details regarding the voluntary disclosure program announced in January and closed a loophole used by some U.S. citizens. See IR-2012-64 for more.

 
IRS Says Offshore Effort Tops $5 Billion, Announces New Details on the Voluntary Disclosure Program and Closing of Off

 

WASHINGTON — The Internal Revenue Service today announced that its offshore voluntary disclosure programs have exceeded the $5 billion mark and released new details regarding the voluntary disclosure program announced in January, including tightening the eligibility requirements.

 
“We continue to make strong progress in our international compliance efforts that help ensure honest taxpayers are not footing the bill for those hiding assets offshore,” said IRS Commissioner Doug Shulman. “People are finding it tougher and tougher to keep their assets hidden in offshore accounts.”

 
Shulman said the IRS offshore voluntary disclosure programs have so far resulted in the collection of more than $5 billion in back taxes, interest and penalties from 33,000 voluntary disclosures made under the first two programs. In addition, another 1,500 disclosures have been made under the new program announced in January.

 
The voluntary disclosure programs are part of a wider effort by the IRS to stop offshore tax evasion and ensure tax compliance. This includes beefed up enforcement, criminal prosecution and implementation of third-party reporting through the Foreign Account Tax Compliance Act ( FATCA).

 
The IRS also closed a loophole that’s been used by some taxpayers with offshore accounts. Under existing law, if a taxpayer challenges in a foreign court the disclosure of tax information by that government, the taxpayer is required to notify the U.S. Justice Department of the appeal.

 
The IRS said that if the taxpayer fails to comply with this law and does not notify the U.S. Justice Department of the foreign appeal, the taxpayer will no longer be eligible for the Offshore Voluntary Disclosure Program ( OVDP). The IRS also put taxpayers on notice that their eligibility for OVDP could be terminated once the U.S. government has taken action in connection with their specific financial institution.

 
Additional details of these eligibility issues are available in a new set of questions and answers released today on the current OVDP, which was announced in January ( see IR-2012-5). The IRS reopened the OVDP following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs.
This program – which helps bring people back into the tax system — will be open for an indefinite period until otherwise announced. The program is similar to the 2011 program in many ways, but with a few key differences. Unlike last year, there is no set deadline for people to apply. However, the terms of the program could change at any time going forward.

 
Under the current OVDP, the offshore penalty has been raised to 27.5 percent from 25 percent in the 2011 program. The reduced penalty categories of 5 percent and 12.5 percent are still available.

 
The IRS also announced a plan to help U.S. citizens residing overseas to catch up with tax filing obligations and assistance for people with foreign retirement plan issues. See IR-2012-65 for more.

 

Editor’s note:  Here are more details on the  procedure:

New Filing Compliance Procedures for Non-Resident U.S. Taxpayers
The IRS is aware that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), Form TD F 90-22.1.  Some of these taxpayers have recently become aware of their filing obligations and now seek to come into compliance with the law.  The Service is announcing a new procedure for current non-residents including, but not limited to, dual citizens who have not filed U.S. income tax and information returns to file their delinquent returns.  This procedure will go into effect on Sept. 1, 2012.Description of proposed new procedure:

While more details will be forthcoming, taxpayers utilizing the new procedure will be required to file delinquent tax returns, with appropriate related information returns, for the past three years and to file delinquent FBARs for the past six years.  All submissions will be reviewed, but, as discussed below, the intensity of review will vary according to the level of compliance risk presented by the submission.  For those taxpayers presenting low compliance risk, the review will be expedited and the IRS will not assert penalties or pursue follow-up actions.  Submissions that present higher compliance risk are not eligible for the procedure and will be subject to a more thorough review and possibly a full examination, which in some cases may include more than three years, in a manner similar to opting out of the Offshore Voluntary Disclosure Program.

Tax, interest and penalties, if appropriate, will be imposed in accordance with U.S. federal tax laws based on a review of the submission.  For a summary of information about federal income tax return and FBAR filing requirements and potential penalties, see IRS Fact Sheet FS-2011-13 (December 2011) at www.irs.gov.

In addition, retroactive relief for failure to timely elect income deferral on certain retirement and savings plans where deferral is permitted by relevant treaty will be available through this process.  The proper deferral elections with respect to such arrangements must be made with the submission.

Compliance risk determination:

The IRS will determine the level of compliance risk presented by the submission based on certain information provided on the returns filed, and based on certain additional information that will be required as part of the submission.  Low risk will be predicated on simple returns with little or no U.S. tax due.  Absent high risk factors, if the submitted returns and application show less than $1,500 in tax due in each of the years, they will be treated as low risk.  In general, the risk level will rise as the income and assets of the taxpayer rise, if there are indications of sophisticated tax planning or avoidance, or if there is material economic activity in the United States.  Additional risk factors include any additional history of noncompliance with United States tax law and the amount and type of United States source income.  Additional information regarding the specific factors the IRS will use to assess the level of compliance risk, and how information regarding those factors should be presented in the submission, will be released prior to the effective date of the new procedure.

How taxpayers will be able to take advantage of the new procedure:

Taxpayers wishing to use the new procedure will be required to submit: (1) delinquent tax returns, with appropriate related information returns, for the past three years, (2) delinquent FBARs for the past six years, and (3) any additional information regarding compliance risk factors required by future instructions.  Payment of any federal tax and interest due must accompany the submission.  More information about the application process including where submissions should be sent, will be provided prior to the effective date.

Any taxpayer claiming reasonable cause for failure to file tax returns, information returns, or FBARs will be required to submit a dated statement, signed under penalties of perjury, explaining why there is reasonable cause for previous failures to file.  See IRS Fact Sheet FS-2011-13 (December 2011) at www.irs.gov for examples of reasonable cause.  Any taxpayer seeking relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty will be required to submit:

  • a statement requesting an extension of time to make an election to defer income tax and identifying the pertinent treaty position;
  • for relevant Canadian plans, a Form 8891 for each tax year and description of the type of plan covered by the submission; and
  • a statement describing:
    • the events that led to the failure to make the election,
    • the events that led to the discovery of the failure, and
    • if the taxpayer relied on a professional advisor, the nature of the advisor’s engagement and responsibilities.

Other considerations:

Taxpayers who are in a situation where they are concerned about the risk of criminal prosecution should be advised that this new procedure does not provide protection from criminal prosecution if the IRS and Department of Justice determine that the taxpayer’s particular circumstances warrant such prosecution.  Taxpayers concerned about criminal prosecution because of their particular circumstances should be aware of and consult their legal advisers about the Offshore Voluntary Disclosure Program (OVDP), announced on January 9, 2012, which offers another means by which taxpayers with undisclosed offshore accounts may become compliant.  For additional information about the OVDP,  see www.irs.gov.  It should be noted, however, that once a taxpayer makes a submission under the new procedure described in this document, OVDP is no longer available.  It should also be noted that taxpayers who are ineligible to participate in OVDP are also ineligible to participate in this procedure.

Anyone interested in using this procedure should be aware that all tax returns must have a valid Taxpayer Identification Number (TIN).  For U.S. citizens, a TIN is a Social Security Number (SSN).  For individuals that are not eligible for an SSN, an Individual Taxpayer Identification Number (ITIN) is a valid TIN. Tax returns filed without a valid SSN or ITIN will not be processed.  For information on obtaining an SSN,  see www.ssa.gov.  For information on obtaining an ITIN, see www.irs.gov.


 


87 thoughts on “IRS Announces Efforts to Help U. S. Citizens Overseas Including Dual Citizens and Those with Foreign Retirement Plans”

  2. @bubblebustin

    And that’s why it is imperative to lie lie lie, tell them nothing that they do not already know.  Why some people out there go all boyscout in reporting everything… i’ll never understand.

  3. *The IRS is taking away important Obama votes from Americans Abroad who are democrats by lumping them together with Americans who live in the USA and have hided foreign accounts not to pay taxes; Americans Abroad have Income Exclusion and Tax Credits. They don´t need to hide anything. If the don´t fill their IRS Returns is more because of the paper work and the cost of paying US CPAs and Tax Lawyers than anything else. We should all write to President Obama telling him that he is losing votes from the Americans Abroad because the way they are being treated by the IRS. And perhaps remind him that by working abroad we are creating jobs in the USA.   

  4. From Todays NYTs and Brian Knowlton who writes on Expat issues…   It was headlined this way…

    Pentagon Reverses Course on American Voters Living Abroad

    WASHINGTON — Responding to the vocal concerns of American expatriates, the Pentagon agency responsible for overseas voting has agreed not to enforce a requirement for voters requesting absentee ballots to state categorically that they either intend to stay abroad indefinitely or not. 

    but the story also goes on to mention the recent changes “common sense” changes announced by Commissioner Shulman on the 26th of June…

    In a separate development, the U.S. Internal Revenue Service said that it would make it easier for American citizens abroad who have not been filing tax returns — some from ignorance of new requirements — to meet their legal obligations if they owe little or no taxes. 

    On the tax matter, the I.R.S. announced a new procedure meant to assist U.S. citizens abroad, including some dual citizens, who have fallen behind on filing, but do not owe large amounts.

    The procedure, to take effect on Sept. 1, will not apply to people considered at higher risk of compliance. But “for those taxpayers presenting low compliance risk, the review will be expedited and the I.R.S. will not assert penalties or pursue follow-up actions,” the agency said.

    Some Americans in Canada had complained that the I.R.S. was subjecting their Canadian retirement accounts to U.S. taxation. The agency said it had “streamlined” handling of such cases.

  5. *In my opinion Brian was too kind to the IRS. I was disappointed. Although I like what he writes it seems to me that he failed to mention that the changes were minimal and Americans Abroad continue to be harassed and penalized by the IRS in an unfair way. 

  6. @thatisme- I would agree with you. I felt the same way about the CBC interview and also about Finance Minister Flaherty’s position on the issue.  The problem is that the powers that be, in both the media and international politics, are dancing around the periphery of this whole issue.  No one is brave enough to attack the heart of the beast because everyone is too scared of offending the Americans.

    This is no time to be a shrinking violet.  For Finance Minster Flaherty to publicly come out and denouce citizenship based taxation would be the best thing that he could do.  The Americans have to be made aware of the fact that the jig is up.  Attempting to make the U.S. seem like a reasonable player is only playing into U.S. hands. 

  7. @Thatisme

    This was published in the International Herald Tribune.  I would keep an eye on their http://rendezvous.blogs.nytimes.com/ blog to see if it shows up and available for comment.  You could express your disappointment there.  I am not sure what determines if a piece moves to the Blog for comment, but that is what happened with David Jolly’s piece some time back and many Brocker’s commented.  Brian was a contributor to that piece too. 

  8. *Yes, Brian´s article was written in a hurry. And was bad for us, giving the impression that the IRS was really being fair to us. The IRS not only owes us an apology for considering us criminals but also needs to change his approach to us. I am still suffering under their uncalled for pressure.

  9. Robert Woods @forbestaxblogs writes again about this program..

    IRS Streamlines Foreign Account Amnesty

    Many U.S. citizens living abroad who haven’t filed FBARs or reported worldwide income on their U.S. taxes want a better deal than the IRS Offshore Voluntary Disclosure Program (OVDP). See New IRS Offshore Amnesty Announced: Third Time’s A Charm. The IRS announced a limited program that’s less expensive than the OVDP, but people want details. Plus, some people who went into the OVDP now may wish they had waited. 

     

  10. @ Just Me

    Your comment on the Forbes article rightly points out that there needs to be a huge PROCEED WITH CAUTION attached to this latest “streamlining” offer by the IRS. We all know what true amnesty would look like but the IRS doesn’t seem to have a clue. They may have lowered the hoops a tad and even removed a few but there are still hoops galore and a lot of uncertainty about how many will even qualify to attempt to jump through them and if they do, what exactly lies beyond that last hoop?

  11. @Em…

    Exactly…  there are always technical hoops and barriers with the IRS!  Nothing is easy. I sometimes wonder if the little IRS scribe that sits in some dinghy cubicle in DC ever looks up and asks himself, “What the hell have I just created?” with this latest 14 layer description of technical compliance exemptions and restrictions?  

  12. @ Just Me

    It must be a hellish place, inside an IRS scribe’s head. I’ve had to reread certain passages in the tax manual many times over and still not been able to figure them out. IRS scribes must get many hours of training in convoluted thinking.

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