IRS offers tax break to some American expats
The Internal Revenue Service (IRS) has outlined new procedures for some “accidental Americans,”, giving them the chance to comply with their US tax and filing obligations and in turn qualify for relief from back taxes, penalties and interest.
The changes would allow people with less than $2m in net worth and less than $25,000 in taxes due over the prior six years to avoid paying those US taxes, the WSJ reports. The Relief Procedures for Certain Former Citizens will apply only to individuals who have not filed US tax returns as US citizens or residents.
Only those taxpayers whose previous compliance failures were non-willful can take advantage of the new procedures, according to the IRS.
The IRS said many people eligible for the relief have lived outside the US for most of their lives and may not have realized that they had U.S. tax obligations. They may have become US citizens by being born in the country or because they had American parents.
The policy applies to people who relinquished their citizenship after March 18, 2010. That is when the US imposed broader reporting requirements on Americans’ offshore accounts, in response to years of tax evasion and bank secrecy.
The relief comes almost a decade after passage of the Foreign Account Tax Compliance Act (FATCA) which was included as part of the HIRE Act of 2010. FATCA requires foreign financial institutions to report the assets of US taxpayers to the IRS, or else face penalties .
The controversial law has pushed several foreign banks to close the accounts of their “accidental Americans” customers and made it difficult for many of them to find banking services.
The stepped-up US enforcement has prompted some expats to relinquish their citizenship to be free of US tax burdens. This is a long and expensive process that requires filing six years’ of tax returns and paying back taxes. In some cases, an exit tax is due, the Journal writes.
Others have launched a crowdfunding campaign to fight FATCA.