NOTICE: IRS & US Citizens Living Abroad

Received from Democrats Abroad - DemocratsAbroad.org :

Dear Fellow Democrat Abroad,

In mid-November, 4 groups representing overseas Americans (Democrats Abroad, Association of Americans Resident Overseas, Federation of American Women's Clubs Overseas and American Citizens Abroad) met for an hour with senior IRS and Treasury officials. Joe Green represented Dems Abroad and also had meetings with the Taxpayer Advocate and the IRS assistant deputy commissioner for service and enforcement.

As you may recall from our previous reports, the IRS has two existing voluntary compliance programs for delinquent tax filers; these are intended to reach out to US "persons" (a very complicated term indeed!) who may have significant unreported income and/or accounts and who wish to avoid potential criminal action by paying the fines and penalties imposed by the IRS. These programs are aimed at helping delinquent tax filers who may have considerable unmet tax obligations.

But the IRS also understands that there are a number (many, some, at least a few) of us whose failure to file does not reach the size or complexity that is anticipated by the official voluntary disclosure programs. So, this past August (and now in effect for the 2012 tax year) the IRS announced a less onerous amnesty program for what the Service calls low-risk non-filers.

The details of this option (called "New Filing Compliance Procedures for Non-Resident U.S. Taxpayers") can be found at the following IRS website:

irs.gov/uac/IRS-Announces-Efforts-to-Help-U.-S.-Citizens-Overseas-Including-Dual-Citizens-and-Those-with-Foreign-Retirement-Plans

"The IRS is aware that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), Form TD F 90-22.1. Some of these taxpayers have recently become aware of their filing obligations and now seek to come into compliance with the law. The Service is announcing a new procedure for current non-residents including, but not limited to, dual citizens who have not filed U.S. income tax and information returns to file their delinquent returns…

"The IRS will determine the level of compliance risk presented by the submission based on certain information provided on the returns filed, and based on certain additional information that will be required as part of the submission. Low risk will be predicated on simple returns with little or no U.S. tax due. Absent high risk factors, if the submitted returns and application show less than $1,500 in [US] tax due in each of the years, they will be treated as low risk. In general, the risk level will rise as the income and assets of the taxpayer rise, if there
are indications of sophisticated tax planning or avoidance, or if there is material economic activity in the United States. Additional risk factors include any additional history of noncompliance with United States tax law and the amount and type of United States source income."

Slightly more detailed, but perhaps more complex "Options Available to Help Taxpayers With Offshore Interests" may be found at this IRS website:

irs.gov/Individuals/International-Taxpayers/Options-Available-to-Help-Taxpayers-With-Offshore-Interests

Please note the following admonition on the above website: "The IRS reminds taxpayers to consult with their professional tax advisor in determining which option is the most appropriate given their facts and circumstance."

While using a tax preparer can be burdensome, and while there are tax-filing sharks in the international waters (beware!), we may have to conclude that IRS compliance will likely involve a financial cost associated with the privilege of living abroad.

For those overseas Americans who have not been filing and who fit within the IRS's definition of low risk, this recently announced option could bring some relief.

We also want to tell you that, while the implementation of the FATCA regulations is still being worked out amongst and between the IRS and various foreign governments and financial institutions, the threshold for reporting financial holdings by overseas Americans has been raised to $400,000 US for single filers and to $600,000 for joint filers.

We must reiterate as we close this update that we cannot offer tax advice and neither do we maintain a list of tax consultants..

We will bring you further updates as our work with IRS, Treasury and Senate and House members and staff continues.

With best regards for peace at home and abroad in the new year,


Democrats Abroad FBAR/FATCA Task Force

Joe Green, Stanley Grossman, Maureen Harwood, Carmelan Polce, Maya Samara,Joe
Smallhoover