The Internal Revenue Service’s new procedures to help U.S. citizens residing overseas, including dual citizens, catch up with tax filing obligations go into effect on September 1, 2012.
If you are a U.S. taxpayer residing abroad and you haven’t been filing tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), you may be able to come into compliance and avoid penalties or additional enforcement actions.
Who Is Eligible?
Only taxpayers who are low compliance risks are eligible to use the new procedures to become current with their tax filing obligations. The IRS defines low compliance risk as people with “simple tax returns and owe $1,500 or less in tax for any of the covered years.”
What You Need To Do
Taxpayers using the new procedures 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.
- More detailed procedures maybe forthcoming from the IRS.
Low compliance risk taxpayers will have their reviews expedited and the IRS will not assert penalties or pursue follow-up actions.
Will You Face Additional Criminal or Civil Tax Charges?
Filing delinquent taxes under the new procedure does not guarantee that you will not face criminal charges. Here are some things to consider before you file under these new procedures:
- If you are a low compliance risk, you will probably not face criminal charges.
- If you are a higher compliance risk, you should consult an attorney about the Offshore Voluntary Disclosure Program (OVDP) announced by the IRS in January 2012. The IRS website says:
“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.”
- If you file under these new procedures and are deemed a high compliance risk, you will not be eligible to participate in the OVDP program.
For More Information
Please consult an attorney with specific questions. We will continue to post updates to these procedures as they become available. Here are some previous posts and related news on tax issues for U.S. citizens living overseas: