From the Tax Law Offices of David W. Klasing - IRS Announces New Relief Procedures for U.S. Expats with Unresolved Tax Compliance Issues
Sep 21, 2019
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IRVINE, Calif., -- While renouncing U.S. citizenship might simplify certain tax issues, the expatriation process triggers tax consequences of its own, enumerated under 26 U.S. Code § 877A. If you are a "covered expatriate" under this statute, you must comply with certain tax requirements – or face costly penalties. However, the IRS recently announced a new relief program, which allows eligible expats to resolve outstanding tax compliance issues (such as failures to file Form 8854) while simultaneously reducing interest, penalties, back taxes, and exit tax liabilities. Our expat tax lawyers explain what the program involves, who qualifies to participate, and how taxpayers enter the program.
On September 6, 2019, the Internal Revenue Service unveiled a new set of relief procedures, which the IRS is calling the "Relief Procedures for Certain Former Citizens." The program is designed for (1) former U.S. citizens (i.e. expatriates), and (2) current U.S. citizens who "intend to relinquish" citizenship in the near future, who may be out of compliance with federal income tax reporting requirements.
As the IRS explains, participating in the program enables certain taxpayers to "avoid being taxed as a 'covered expatriate' under" federal statute 26 U.S. Code § 877A, which you may recall being mentioned few moments ago. But why would a taxpayer want to avoid covered expatriate status in the first place? In short, a covered expatriate pays costly taxes. Specifically, he or she is liable for a mark-to-market exit tax, meaning the covered expatriate's property (and other "worldwide assets") are treated as if they were sold on the date preceding renunciation. The resulting gains are subject to the tax, depending on certain criteria. For more information about this subject, see our article explaining how exit taxes work and who is considered a "covered expatriate." Otherwise, continue reading to learn more about the new IRS relief procedures for expats.
How Do Former U.S. Citizens Enter the Program?
If you believe you may be eligible for the new IRS expat relief program, you should discuss your situation in detail with a competent international tax attorney. Even if you are technically eligible, there may be superior options available to you depending on your specific tax situation.
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