IRS Announce Relief for Some US Expats

On September 6, 2019, the IRS announced a new procedures, called the Relief Procedures for Certain Former Citizens for certain individuals who renounced or relinquished their United States citizenship in order to comply with Internal Revenue Code or U.S. tax laws. Now they can comply with US tax laws and information return filing obligations without having to pay any tax due, without incurring any delinquency penalties, and without being subject to the U.S. expatriation tax.

Why such a relief ?

It is the need of time and practical approach of IRS to sort out a problem of non-compliance which happen mostly unwillingly or out of ignorance or practical situation a US citizen often face. The Internal Revenue Code requires that a U.S. citizen, whether they are resident of USA or reside abroad , must report and pay all applicable taxes on their worldwide income to US govt. This creates tax law compliance problems for many US expatriates as well as individuals , born in the United States to foreign parents or born outside the United States to U.S. citizen parents, but being unaware about their citizenship or tax laws associated on account of being citizen of USA. It is but natural that many US expats prefer relinquishing their U.S. citizenship to come into compliance with their U.S. tax and filing obligations and receive relief for back taxes. But IRC 877A contains a special set of rules for U.S. citizens who relinquish their U.S. citizenship. The procedure announced by IRS is for relief to all such US expatriates.

Who can avail the new relief ?

The new relief can be availed by US expatriate taxpayers if he/she failed to to file required tax returns and pay taxes and penalties for the years at issue and such failure was due to non-willful conduct. Further ,the new procedural benefit allows all individuals expatriates only if

  1. He/She expatriated after March 18, 2010.
  2. He/she has 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
  3. He/She should not have an aggregate tax liability of more than $25,000 for the taxable year of expatriation and the five prior years.
  4. You have no filing history as a U.S. citizen or resident;
  5. You did not exceed the threshold in IRC 877(a)(2)(A), related to average annual net income tax for the period of 5 tax years ending before your date of expatriation;

These procedures are only available to individuals. Estates, trusts, corporations, partnerships and other entities may not use these procedures.

What is Non-willful conduct for this procedure?

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.

What documents needed for applying to this procedure?

The IRS page states that one needs following documents in order to apply under Relief Procedures for Certain Former Citizen procedure.

  1. Certificate of Loss of Nationality (CLN) of the United States, Form DS-4083, or copy of court order cancelling a naturalized citizen’s certificate of naturalization (described in IRC 877A(g)(4)(D)).  If you supply Form DS-4083, the date in the field “That: he/she thereby expatriated __self on (Date) ______ under the provisions of Section…” must be after March 18, 2010.  The CLN must be stamped “Approved” by the Department of State.
  2. Identification: Copy of (a) valid passport OR (b) birth certificate and government issued identification.
  3. Year of expatriation: “Dual-status” return including Form 1040NR with all required information returns:
    • Form 8854;
    • Form 1040 attached as an information return reporting worldwide income up to date of expatriation; and
    • All other required information returns, including but not limited to Form 8938. See Notice 2009-85 for more information on dual-status returns.
  4. Five tax years preceding the tax year of expatriation: Forms 1040 with all required information returns.

On the first page of the documents submitted pursuant to these procedures write in red ink “Relief for Certain Former Citizens” at the top of the document.