Late To File Your US Tax Returns?

There are many people who are unaware that they have a tax filing obligation to the United States, and this is because the US taxes all citizens on their worldwide income, regardless of their place of residence.

This means that a US citizen can be born and reside in another country, work locally and pay taxes to their local government, and yet, still be required by law to report annual income to the US.

Over the last ten years, many more people have become aware of their filing obligation to the US. This is a result of the Foreign Account Tax Compliance Act (FATCA) that was passed in 2010. This act addressed the reporting of foreign financial accounts to the US. As a result, OECD member nations committed to international taxation standards frequently referred to as CRS (common reporting standards). Banks in member OECD countries are now involved in the automatic information sharing initiative.  These banks are required to actively gather information on the foreign status of their account holders. Banks began to request of their clients to fill in forms, such as the W-9 form stating their status as US citizens and asking them to confirm that they were compliant with their tax filing obligation. Suddenly, US Expats realized that indeed they had a tax filing obligation to the US which had not been met. As these requests by banks became more widespread, more and more Expats were made aware of their obligation and the question many asked was ‘now what?’

The IRS answered that question in 2012 with its launch of the Streamline Offshore Program as a means of allowing taxpayers to make up for their filing delinquency and become compliant. This program was further developed over the next few years. It includes filing three years back of delinquent tax returns and six years of Fbars. One must also sign a certification of non-willful conduct. Entering into this program allows taxpayers to come clean without having to pay any penalties for delinquency or late filing of past returns or Fbars. This has been a huge relief to many taxpayers as the penalties can be high, with Fbar penalties up to 50% of the taxpayer’s foreign bank account balance.

One needs to have been physically outside of the US for at least one full year of the last three delinquent tax years (years in which the tax filing due date for the calendar tax year has passed) in order to be eligible. If one had a US abode during that year, it would disqualify him from entering into the Streamline Offshore Program. A person’s abode is considered to be the place of his family, economic and personal ties.  Additionally, the individual must demonstrate that his filing delinquency was unintentional and non-willful.  

The IRS recently ended the DIIRSP which stands for Delinquent International Information Return Submission Procedures, which was one of its amnesty programs for international taxpayers. This program allowed Expats to get up to date with their tax filing while avoiding penalties for years not filed due to reasonable cause.

This serves as a reminder that the IRS amnesty programs were not made to remain permanent and can be discontinued at any time. For international taxpayers who are not up to date with their tax filing this should serve as a wakeup call to take the necessary steps to becoming compliant.

It is unknown until when the Streamline Program will be available. It is therefore advisable to enter into this program while it is still an option, to be able to become compliant while avoiding penalties. As the IRS continues to crack down on international tax evasion, Expats are urged to take the necessary steps to become compliant while this program still exists.