Learn How the IRS Streamlined Procedure is Still a Great Deal for US Expats
Over the past few years, the US government has been making substantial efforts to tackle tax evasion as part of a broader 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 realized 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 IRS 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 available to anyone and requires self-certification that previously 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 than 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 IRS 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 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 must 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 after 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.
What IRS Streamlined Procedure Offers
The IRS 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 three years’ of returns now be filed along with the previous six years of FBARs (declaring any foreign bank accounts with an aggregate balance of over $10,000 in a year). Plus, any taxes due are paid, and the declaration stating that past non-compliance wasn’t willful 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.
Article Provided by Bright! Tax. Consult a tax advisor for full details.