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New IRS Procedures for Expats

New IRS Procedures for Expats

Overview
The IRS announced Relief Procedures for Certain Former Citizens (IR 2019-151) which outlines new procedures to enable expatriated individuals options to come into compliance with their U.S. tax and filing obligations.  The new procedures allow U.S. citizens who have relinquished, or intend to relinquish, their U.S. citizenship to avoid being taxed as a “covered expatriate” under Section 877A of the U.S. Internal Revenue Code (IRC).  These procedures are currently being offered without a specific termination date, but the IRS will announce a closing date prior to eliminating the program.

Who Is Eligible?
The IRS is providing an alternative means for satisfying the tax compliance certification process for citizens who expatriate after March 18, 2010 and have no filing history as a U.S. citizen or resident. These procedures are only available to U.S. citizens with a net worth of less than $2 million (at the time of expatriation and at the time of making their submission under these procedures), and an aggregate tax liability of $25,000 or less for the taxable year of expatriation and the five prior years.  Only taxpayers whose past compliance failures were non-willful can take advantage of these procedures.  Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.  Additionally, the procedures are only available to individuals. Estates, trusts, corporations, partnerships and other entities may not use these procedures.

How to Apply
In order to take advantage of the relief procedures, eligible individuals are required to file all outstanding U.S. tax returns (including all required schedules and information returns) for the five years preceding expatriation as well as the year of expatriation.

What Does Relief Entail?
As mentioned above, eligible individuals who submit the appropriate information and meet the requirements of these procedures, will not be “covered expatriates” under IRC 877A. In addition, they will not be liable for any unpaid taxes and penalties for these years or any previous years.

Additional Guidance
The IRS has announced plans to host an online webinar at a date to be determined to provide additional information and tips for submitting a request for relief.  Helpful FAQs may be found on the IRS website https://www.irs.gov/individuals/international-taxpayers/relief-procedures-for-certain-former-citizens#faq.  Relinquishing U.S. citizenship and the tax impacts of relinquishing U.S. citizenship are serious matters that involve irrevocable decisions. Consider consulting legal counsel before making any decisions about relinquishing U.S. citizenship.

For more information, please contact a member of the Herbein tax team, or email us at info@herbein.com.

Article written by Greg Koch.