This month, the New Streamlined Filing Compliance Procedures for Non-Resident U.S. Taxpayers (“Streamlined Filing for Non-Residents Procedure”) took effect. The IRS realizes that some U.S. taxpayers living abroad have failed to timely file tax returns or Reports of Foreign Bank and Financial Accounts (“FBARs”), but want to come into compliance. Under this Streamlined Filing for Non-Residents Procedure, taxpayers who voluntarily come forward and file tax returns and FBARs may escape penalties.
Who is eligible?
The Streamlined Filing for Non-Residents Procedure is available to non-resident U.S taxpayers (including, but not limited to, dual citizens) who have resided outside of the U.S. since January 1, 2009 and who have not filed a U.S. tax return during the same period. In addition, these taxpayers must present a low compliance risk.
What is required?
Taxpayers will be required to file delinquent tax returns, with applicable related information returns such as Forms 3520 or 5471, for the past three (3) years and to file delinquent FBARs for the past six (6) years. Payment for the tax and interest must be remitted along with the delinquent returns. Taxpayers submitting returns must have a valid Taxpayer Identification Number.
The IRS will determine the level of compliance risk based on the returns submitted and a Questionnaire that is required. Generally, a low risk determination will be predicated on simple returns with little or no U.S. tax due. If there are no high risk factors, and the returns show less than $1,500 in tax due in each of the years the returns will generally be treated as low risk and processed in a streamlined manner. For those taxpayers presenting low compliance risk, the review is expedited and the IRS will not assert penalties or pursue follow-up actions.
How does the compliance risk level rise?
The risk level may rise if any of the returns submitted claim a refund, there is material economic activity in the U.S., the taxpayer has not declared all of his/her income in his/her country of residence, the taxpayer is under audit or investigation by IRS, the taxpayer has previously been assessed FBAR penalties or received an FBAR warning letter, or if the taxpayer has a financial interest or authority over a financial account located outside his/her country of residence.
Is there a risk of criminal prosecution?
The Streamlined Filing for Non-Residents Procedures does not provide protection from criminal prosecution if the IRS and the Department of Justice determine that the taxpayer’s particular circumstances warrant prosecution. Taxpayer’s with criminal prosecution concerns may want to consider the 2012 Offshore Voluntary Disclosure Program (“OVDP”). However, once a taxpayer makes a submission under the Streamlined Filing for Non-Residents Procedure, the 2012 OVDP is no longer available. If a taxpayer is ineligible to use the 2012 OVDP, that taxpayer is also ineligible for the Streamlined Filing for Non-Residents Procedure.
New reports designed to catch people who hide assets
Since the IRS now has new enforcement tools with respect to accounts of U.S. taxpayers in foreign jurisdictions, now is the time for taxpayers to take action and resolve their tax problems.
For example, foreign financial institutions that hold U.S. securities portfolios, as a practical matter, in order to avoid burdensome U.S. withholding on that portfolio, will soon be required to perform due diligence to determine indirect or direct U.S. account owners, and to report those U.S. owners.
* * * *
Tax Advice Disclosure: To ensure compliance with requirements imposed by the IRS under Circular 230, we inform you that any U.S. federal tax advice contained in this communication (including any attachments), unless otherwise specifically stated, was not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any matters addressed.
This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
Established in 1925, Gunster is one of Florida’s oldest and largest full-service law firms. The firm’s clients include international, national and local businesses, institutions, local governments and prominent individuals. Gunster maintains its presence in Florida with offices in Fort Lauderdale, Jacksonville, Miami, Palm Beach, Stuart, Tallahassee, Tampa, Vero Beach and West Palm Beach. Gunster is home to more than 165 attorneys and 200 committed support staff, providing counsel to clients through 18 practice groups including banking & financial services; business litigation; construction; corporate; environmental & land use; government affairs; health care; immigration; international; labor & employment; leisure & resorts; private wealth services; probate, trust & guardianship litigation; professional malpractice; real estate; securities and corporate governance; tax; and technology & entrepreneurial companies. Gunster is ranked among the National Law Journal’s list of the 250 largest law firms.