New IRS Relief Procedures for US Expatriates
On September 6, 2019 the Internal Revenue Service published details of how certain cross-border interested individuals who give up their United States citizenship may gain relief from Section 877A exit tax.
The new Relief Procedures for Certain Former Citizens, complement the IRS’s existing Streamlined Foreign and Domestic Offshore Procedures. Those eligible for the relief will not have to pay any delinquency penalties or any expatriation tax.
According to the IRS, to qualify an individual must:
- Have renounced or relinquish US citizenship after March 18, 2010.
- Have not previously filed a US Individual Income Tax Return as a US citizen or resident.
- Not have an average annual net income tax liability for the five years preceding the year of renunciation/relinquishment that exceeds a specified amount adjusted for inflation ($168,000 for 2019)
- Have a net worth below USD 2,000,000 at the date on which they relinquished or renounced their US citizenship
- Have an aggregate total tax liability of USD 25,000 or less for the five tax years preceding expatriation plus the year of renunciation/relinquishment (this figured is calculated once all possible exclusions, exemptions, deductions and credits – including foreign tax credits but excluding US expatriation tax – have been applied).
- Consent to fulfil all US federal income and gift tax return forms for the five years preceding the surrender of US citizenship as well as the year of renunciation/relinquishment.
- Not have wilfully failed to comply with U.S. income tax and information return filing obligations prior to renunciation.
Unlike the IRS’s Streamlined Procedures, the new Relief Procedures do not require an individual to provide a US social security number. However, if they have an individual taxpayer identification number (ITIN) it should be stated on all returns.
The IRS says it will take up to two months to provide applicants with confirmation it has received a submission for relief under the new relief procedures and that it will provide no specific termination date for the end of the procedures. Trusts, estates, partnerships and corporations are ineligible for relief.
Anyone wishing to know more can join an on-line webinar in which the IRS will answer questions and provide additional information on submitting for Relief Procedures for Certain Former Citizens – dates yet to be released.
At Blacktower (US) LLC we have reported previously on the plight of so-called ‘Accidental Americans’ and this new procedure would appear to offer some relief from the Foreign Account Tax Compliance Act (FATCA) for US expatriates, many of whom have lived abroad for most of their lives and, until recently, did not realise they had a tax liability to the country of their birth.
This new procedure has been put in place to assist US expatriates, but for the many who have already spent considerable time and money ensuring their compliance, it is perhaps too little too late.
Disclaimer: Blacktower (US) LLC is not a tax adviser and independent tax advice should be sought. The above does not constitute advice.
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Investment advice and investment advisory services offered and provided through Blacktower Financial Management US, LLC. This communication is for informational purposes only based on our understanding of current legislation and practices which are subject to change and are not intended to constitute, and should not be construed as, investment advice, tax advice, tax recommendations, investment recommendations or investment research. You should seek advice from a professional before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.