Just over a year ago, the IRS launched its reformed Streamlined Procedure offering US expats who weren't up to date with their tax and FBAR filing a penalty-free path to compliance.
Over the past few years, the US government has been making substantial efforts to tackle tax evasion as part of a wider effort to tackle the national deficit and debt. One group in particular that has been targeted is that of high value individuals who hide their wealth abroad. However the measures taken have also affected the other estimated seven million US citizens and green card holders living outside the US. Measures included onerous new filing requirements under FATCA and FBAR legislation, and harsh financial penalties for expats who weren't up to date with their tax returns. Millions of expats weren't up to date and compliant with filing requirements however for the simple reason that they weren't aware that they had to file, as they didn't owe any tax to the IRS.
The IRS finally realised though that their Big Stick approach was proving counterproductive in terms of persuading expats to begin to file, and last year it changed its approach.
The amnesty known as the Streamlined Procedure existed previously, however it had only been open to people who owed less than $1,500 a year in taxes. Since June 2014 however, it has been open to anyone, and simply requires self-certification that previous missed filings were not wilful tax avoidance.
In particular the change was intended to appeal to the possible million US citizens (including dual citizens) living in Canada, many of whom don't believe that they owe the IRS any taxes because Canadian taxes are higher that US taxes. Furthermore, a dual taxation agreement exists between the two countries.
Since it came into force in June 2014, tens of thousands have come forward and filed using the Streamlined Procedure, however there are still millions of US expats all around the world who haven't.
Some may not be aware of their obligations. Others simply don't appreciate the perceived intrusion into their private affairs (especially when they often don't owe the IRS any tax anyway) and wish to remain under the IRS's radar. However the rules are clear: all US citizens and green card holders are obliged to file a tax return every year, wherever they are living. Furthermore, expats also have to declare information about their foreign income, assets and bank accounts. All are risking potentially hefty fines for evasion, quite aside from the issue of stress for those who know that they should have filed but haven't.
Some hold hope that the law will change following next year's election, so that they'll be released from their obligations, however with the US government running a hefty deficit and over a trillion dollars worth of national debt, easing up on tax collection is not going to be anywhere near the top of any new administration's list of priorities, even if it was ideologically sympathetic.
Worse still, almost every bank in the developed world has signed up to let the IRS know the details of any American citizens who hold accounts with them, as otherwise they'd be barred from trading in US markets. So the IRS is already aware of many of the expats who haven't yet filed.
The Streamlined Procedure offers a safe, penalty-free route to compliance, even for those expats who have never filed their returns and FATCA and FBAR forms before. It requires that the last 3 years' of returns now be filed along with the last 6 years of FBARs (declaring any foreign bank accounts with an aggregate balance of over $10,000 in a year), that any taxes due are paid, and the declaration stating that past non-compliance wasn't wilful avoidance. And that's it. No penalties, and no more sleepless nights. As such, now a year after its launch, the Streamlined Procedure continues to represent a great deal for US expats who haven't got to grips with their filing obligations.
With clients in over 100 countries worldwide, Bright!Tax is the cloud based US expat tax services firm most sought after by the 7 million Americans living abroad. All CPAs. Fanatical customer support. If you have any questions, or would like some advice, contact us here.
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