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Tax Relief for Expatriating Americans

Related to our previous article on accidental Americans, are you looking to relinquish your U.S. passport but are concerned about the tax implications of doing so? Or have you already relinquished your U.S. passport and are looking for tax relief for back taxes? 

If so, you may be in luck. Due to new procedures released by the IRS, Americans who gave up their U.S. passport after March 18, 2010, who have never filed a U.S. tax return, who owe a limited amount of taxes to the U.S., and who have net assets of less than $2 million, may take advantage of these new procedures to get caught up with their U.S. tax filing obligations.

To take advantage of this program, taxpayers will need to file a tax return for the current year and the five preceding years, which would include information returns such as the FBAR for reporting ownership in foreign bank accounts. Provided that your tax liability does not exceed $25,000 for the six years (current year plus past five years), you will not be assessed any tax owed, interest or penalties. For people who were unaware that they were considered a U.S. person for tax purposes and who have lived outside the U.S. their entire lives, this is a great program to get caught up and squared away, without getting hit by penalties. Of course, the non-compliance must have been non-willful. Further, you must also not meet the requirements of being what is called a “covered expatriate.”

Also, while the IRS is offering these new procedures without a specific termination date, there is no guarantee that this option will be available forever. Indeed, many taxpayers were surprised when the IRS canceled the Offshore Voluntary Disclosure Program (OVDP), thus leaving some with no option other than the Streamlined Procedures or filing delinquent returns, in order to get caught up.

Don’t get caught flat-footed and without a plan. Engage the services of a professional firm experienced in expat tax matters. If you are looking to relinquish your U.S. passport, you have one shot at getting things right. Do not leave such an important matter to chance.  Even though the new IRS procedures work in your favor if you meet all the requirements, the procedures need to be followed in a specific way, and being unable to submit sufficient evidence of non-willfulness will result in one not qualifying for the procedures.