January 2020 JD Supra and Foodman Website

On September 6, 2019, IRS announced Relief Procedures for Certain Former Citizens.  These are procedures for certain persons who have relinquished, or intend to relinquish, their United States  citizenship, who wish to come into compliance with their U.S. income tax and reporting obligations and who wish to avoid being taxed as a “covered expatriate” under section 877A of the U.S. Internal Revenue Code (IRC) after the passage of FATCA (citizens who expatriate after March 18, 2010).  The relief procedures are only available for Individual Taxpayers (Corporations, Trusts, Partnerships or other Entities are not eligible to participate).

The relief procedures are available only for Taxpayers whose past compliance failures were due to non-willful conduct, and have: 

• Relinquished US citizenship after March 18, 2010
• No filing history as a US citizen or resident
• Not exceeded the threshold in IRC 877(a)(2)(A), related to average annual net income tax for the period of 5 tax years ending before the date of expatriation;
• A net worth less than $2,000,000 at the time of expatriation and at the time of making the submission under these procedures
• An aggregate total tax liability of $25,000 or less for the five tax years preceding expatriation and in the year of expatriation
• Agreed to complete and submit with the submission all required Federal tax returns for the six tax years at issue, including all required schedules and information returns

The IRS defines non-willful conduct as conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

THE IRS RELIEF PROCEDURES DO NOT ACKNOWLEDGE:

A) Accidental Americans
There are US citizens living overseas that may be unaware of their status as US citizens. These US citizens are known as “Accidental Americans”. Under US Tax Law, these individuals have US tax reporting responsibilities and tax obligations.
How can someone be an “American” and not know it?
• The Individual could have been born outside of the US to a US parent, and been told by the parents that the Individual was not a US citizen as the Individual is a citizen of another country.
• The Individual could have moved to another country at a very young age.
• The Individual became a citizen of another country and thought that their US citizenship had ended.
• The Individual could have been born in the US and was not aware of a Social Security number and spent their entire life elsewhere.
• The Individual never renewed a passport.

B) US Taxpayers Living Overseas
A significant number of US Taxpayers living overseas have become “unbankable” where they live because of high account servicing costs for local banks (Foreign Financial Institutions – also known as FFIs) caused by the requirements of FATCA. A number of FFIs will not open bank accounts for US Citizens and/or U.S. Permanent Residents without a W-9, or other pertinent tax documentation. Meaning, the “bank customer” could be identified by the FFI as a US citizen based on Indicia – one being the US as a place of birth. A “bank customer” identified as a US citizen based on US Indicia must provide to the FFI a Social Security Number (SSN), or if the customer is no longer a US citizen, proof of loss of US citizenship. As a result, with the passage of FATCA in 2010, many US Taxpayers living overseas (Expatriates or Expats) renounce to their US citizenship.

Don’t be a victim of your own making

A person is considered a US citizen until the date the US Department of State issues a certificate of loss of nationality.   Until then, “Accidental Americans” (and US Taxpayers living overseas)  have tax filing and reporting obligations with the US Treasury Department. 

If you suspect that you might be an “Accidental American”, and you are unaware of potential tax filing obligations and responsibilities, you should investigate your obligations and understand if you need to come into compliance.  The IRS Relief Procedures for Certain Former Citizens is targeted towards “Accidental Americans” that did not understand their responsibilities.  Consult your specialized tax advisor.