Still Waiting on More Details from IRS on Compliance Procedures for U.S. Taxpayers Living Overseas

In June, the IRS announced new procedures to help U.S. citizens residing overseas, including dual citizens, catch up with tax filing obligations and assist with resolving some issues related to certain foreign retirement plans. While the new procedures become effective September 1, 2012, the IRS has yet to issue more details or specific factors used to determine compliance risk.

Tax Filings and FBARs

Under the new procedures, U.S. taxpayer residing abroad and who haven’t been filing tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), may be able to come into compliance and avoid penalties or additional enforcement actions. For more details see our previous blog post, New Filing Compliance Procedures for Non-Resident U.S. Taxpayers Go Into Effect September 1, 2012.

Foreign Retirement Plans

The new procedures also allow U.S. taxpayers to resolve issues related to certain foreign retirement plans, particularly the Canadian Registered Retirement Savings Plan. According to the IRS website, taxpayers with low compliance risk, who did not make timely elections for deferring income, where deferral is permitted by relevant treaties, may still be able to seek relief by submitting:

  • 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.

Low Compliance Risk

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.”

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.

The IRS said it would issue more guidelines on determining risk level before the new procedures become effective September 1, 2012.

Criminal Charges

Filing delinquent taxes under the new procedure does not guarantee that you will not face criminal charges. Read our previous post here for more factors to consider before you file under these new procedures.

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:

Instructions for New Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers, IRS Website

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

IRS Announces Efforts to Help U. S. Citizens Overseas Including Dual Citizens and Those with Foreign Retirement Plans, IRS Press Release

New Filing Compliance Procedures for Non-Resident U.S. Taxpayers Go Into Effect September 1, 2012, Boston Tax Attorney Blog