Darryl, an Enrolled Agent, has many years of expat tax experience, including how the Streamlined Tax Amnesty program works. He has taken time out of his busy day to explain how American citizens living abroad that have somehow fallen behind with their tax commitments, can correct the problem, ensuring that they don’t encounter any problems, fines or penalties in the future.
Many U.S. citizens living abroad are not aware that they have an obligation to file an annual U.S. federal tax return, others have been filing them incorrectly with essential details missing, such as pensions and retirement accounts. These people have a chance to become compliant once more, risk-free.
Darryl explains in detail the requirements for qualifying for the tax amnesty program and also outlines what paperwork needs to be prepared before submitting to the IRS.
Is everyone eligible for the amnesty program?
If a person has any outstanding issues with the IRS or has received a notice from them, they cannot seek amnesty because it clearly states that it is for people who have unintentionally made the mistake of not filing or accidentally provided incorrect information. This immediately renders that they have not approached the IRS voluntarily. However, if they address these outstanding issues, they can then see if they qualify for the following years.
In order to qualify there are three essential criteria. The first is that only people who have lived abroad can apply to the foreign amnesty program. They need to have been in their new country of residence for at least 330 days of the three-year period that they are seeking the amnesty for.
It is also essential that they state that they were not aware that they were obliged to make a tax filing or that they didn’t know that the income they didn’t declare was obligatory. In other words, they have to prove that it was unintentional.
Finally, they have to present a letter confirming that they are now aware of their annual tax requirements to the IRS and will submit a return from this point on.
This information is very important and provided on the Streamlined Certification.
What about those citizens who have been living abroad for more than three years
Sometimes, even people who have been living elsewhere for decades are not aware of the tax laws and the requirement that they file a US tax return yearly. According to Darryl, even these cases qualify for the amnesty if the omission was by mistake.
The great news is that by seeking amnesty, these people will only need to submit their tax returns for the last three years, whether they were eligible to pay tax prior across these three years or not. If they have decided to apply now, they will only need to file for the 2017, 2018, and 2019 tax years.
It is important that the tax returns are completely accurate and include all income from abroad and any from within the U.S. This will allow them to take advantage of any deductions and exclusions. Any tax payable on these returns that is overdue will have to be paid with the interest.
I want more information about streamlined tax amnesty program
How to file a tax return correctly if you live abroad?
It is essential that all the information gets transferred to the tax return correctly and this is one area where many people living abroad usually make mistakes. They need to correctly declare their income, including that from abroad. If they are stockholders in a company, even those registered abroad, they need to file this information and their income from there.
Income needs to be converted into US dollars at the prescribed IRS exchange rate.
Often people are not aware of the tax regulations because these change from year-to-year. Most amendments to tax returns from the past three years can be corrected under the amnesty program, but this depends on the types of errors that have been made.
What fines or penalties are levied for these amended and late tax returns?
One of the reasons that many people are taking advantage of the current amnesty is that there are no penalties for late filing, late payment or incorrect submissions. Only interest will be charged on the overdue amounts, and this is the same as that charged to people still living in the U.S.
Very few US citizens living abroad have to pay US tax, but of course it really depends which country they’re living in and what tax treaty exists between that country and the United States.
What about the tax from the years before the amnesty program?
Once accepted into the amnesty program then all the previous years are no longer of consequence. The person becomes tax compliant for all past years once the tax amnesty returns are settled, as long as all future returns are made.
Do Green Card holders qualify for the tax amnesty program?
As long as they are still legally U.S. citizens, then Green Card holders are also eligible to apply for the tax amnesty program.
Green Cards only expire for immigration purposes, not taxation purposes. That’s something many Green Card holders don’t know.
There is an official process to return a Green Card and remove US tax obligations.
Why you need to get into the tax amnesty program now?
Darryl stresses that this significant tax amnesty program that has been beneficial to both the IRS and taxpayers living abroad who had fallen behind in their tax responsibilities. However, since this could change, he advises that people not take too long to decide on taking advantage of it.
Usually, only high-income earners end up paying any substantial money and most people do not qualify to pay tax because they have paid in their country of residence.
Expat Tax Online is where the process is made easy for those seeking amnesty. Clients are helped with the requirements and are successfully guided through the process. With over 2,500 applications since it was first introduced, the success rate has been 100%. Contact us here…
What happens to any refundable credit?
Each individual case is different, but it is possible for people using the amnesty program to get a refund without paying any US tax. Mainly, the refunds for most filers come from the Child Tax Credit Refund.
Thousands of US citizens abroad pay zero US tax and pick up a refund each year from the IRS.
What paperwork is required for the tax amnesty application?
- U.S. tax returns for all three calendar years. These need to reflect all the necessary information, including income, expenses, and deductions.
- Foreign Bank Account Report, also known as FBAR for the last six years and it must also reflect bank accounts, insurances, brokerage accounts and investment plans. Even though the highest amount reflected at any period of the last six years is included into the amnesty papers, this amount is not taxed and is only used for informational purposes.
- Offshore Certification, also known as the Statement of Fact, is where the taxpayer states why no tax returns were submitted or why a mistake was made and that it was unintentional. They promise that from that moment on they will file one annually. Expat Tax Online includes the certification whereas some tax preparers do not.
Read more about IRS Streamlined Procedures here.