The IRS released new Relief Procedures for Certain Former Citizens which provide an alternative means for individuals who have expatriated or intend to expatriate to satisfy their US tax compliance certification process. To be eligible under the new procedures, an individual must: (1) relinquish his citizenship after 18 March 2010; (2) have no filing history as a US citizen or resident (including information returns); (3) have not exceeded the average annual net income tax threshold for the previous 5 years before expatriation (in 2018 the tax threshold was USD 168,000); (4) net worth less than USD 2,000,000; (5) aggregate total tax liability of USD 25,000 or less for the five tax years preceding expatriation and in the year of expatriation; (6) complete and submit all federal tax returns, including all schedules and information returns for the previous six years; and (7) all past compliance failures were due to non-willful conduct.
According to the IRS release, although a taxpayer is not required to file Report of Foreign Bank and Financial Accounts (“FBARs”) under these procedures to be considered tax compliant, if a taxpayer submits his FBARs before or contemporaneously with his other tax and information returns, the IRS will not assess FBAR penalties (ie, the taxpayer may avoid the harsh 50% of the account value penalty that can otherwise be imposed).
A significant benefit of these procedures is that an eligible individual coming into compliance under these procedures is not required to pay any tax and is not subject to any interest or penalties associated with the delinquent returns. If a taxpayer submits a complete submission (and meets all of the abovementioned eligibility criteria) the IRS will send a letter notifying the taxpayer that his submission has been received and is complete.
These procedures are separate and distinct from the formal Offshore Voluntary Disclosure and Streamline Disclosure Programs and only apply to US taxpayers who have or will relinquish their US citizenship or long-term (at least 8 years) green card.
Relinquishing US citizenship involves irrevocable decisions and should only be undertaken after thoughtful consideration of the taxpayer’s specific situation as expatriation has not only tax implications but also immigration consequences for the expatriate.