United States

IRS offers tax relief procedures to certain expatriates

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The IRS announced new relief procedures from paying back taxes for certain persons who have relinquished, or intend to relinquish, their U.S. citizenship and become compliant with their U.S. income tax and reporting obligations.

The “Relief Procedures for Certain Former Citizens” (IR-2019-151) is restricted to individuals who relinquished their citizenship after March 18, 2010, or intend to relinquish in the future, have net assets of less than $2 million, and have a six-year aggregate tax liability of less than $25,000. Furthermore, only taxpayers whose past compliance failures were non-willful are eligible for these new procedures.

Eligible individuals who want to use the new relief procedures are required to file outstanding U.S. tax returns, including all required schedules and informational returns (including Form 8938, Statement of Specified Foreign Financial Assets and FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)), for the year of expatriation and the five years preceding. Individuals who meet the above requirements and submit the requested information will not be considered “covered expatriates” under section 877A, nor will they be liable for any unpaid taxes, penalties and interest for the expatriation tax year and the five years preceding the year of expatriation. 

Under section 877A, individuals who are “covered expatriates” are treated as having disposed of all worldwide assets on the day before their expatriation date, and are required to pay a mark-to-market exit tax on the gain resulting from the deemed disposition of their worldwide assets. Additionally, they may be subject to additional tax consequences with respect to certain deferred compensation items and trust distributions. The new procedures are meant to provide relief to certain former citizens by allowing alternative means for satisfying the tax compliance certification process.

The IRS indicated that the purpose of the new procedures is to give relief to certain former citizens.The agency further stated that there is no specified termination date for the procedures and they will announce a closing date prior to terminating the procedures. 

As per the release, “Relinquishing U.S. citizenship and the tax consequences that follow are serious matters that involve irrevocable decisions. Taxpayers who relinquish citizenship without complying with their U.S. tax obligations are subject to the significant tax consequences of the U.S. expatriation tax regime.” Taxpayers that may benefit from this new relief procedure should consult with their tax advisers before making any decisions

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