New Relief Procedure for Certain Expats Who Have Relinquished, or Intend to Relinquish, Their U.S. Citizenship

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On September 6, 2019, the IRS announced procedures for certain persons who have relinquished, or intend to relinquish, their U.S. citizenship and who wish to come into compliance with their U.S. income tax and reporting obligations and avoid being taxed as a “covered expatriate” under the Internal Revenue Code.

Individuals who relinquished their U.S. citizenship any time after March 18, 2010, are eligible so long as they satisfy the other criteria of the procedures. In addition, these procedures are only available to individuals (i.e., estates, trusts, corporations, partnerships and other entities may not use these procedures).

These new procedures apply only to individuals who have not filed U.S. tax returns as U.S. citizens or residents, owe a limited amount of back taxes to the United States and have net assets of less than $2 million. Only taxpayers whose past compliance failures were non-willful can take advantage of these new procedures. Non-willful conduct is 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 notes that many U.S. citizens or residents who can take advantage of the new procedures will likely have lived outside the United States most of their lives and may have not been aware that they had U.S. tax obligations.

In order to take advantage of the relief procedure, an eligible individual must file outstanding U.S. tax returns, including all required schedules and information returns, for the five years preceding and their year of expatriation. Provided that the taxpayer’s tax liability does not exceed a total of $25,000 for the six years in question, the taxpayer is relieved from paying U.S. taxes. In addition, the individuals who qualify for these procedures will not be assessed penalties and interest.

Notably, the IRS is offering these procedures without a specific termination date. However, the IRS has stated that it will announce a closing date prior to ending the procedures.

Please note that relinquishing U.S. citizenship and the tax consequences that follow are serious matters that involve irrevocable decisions. Taxpayers who relinquish citizenship without complying with their U.S. tax obligations are subject to the significant tax consequences of the U.S. expatriation tax regime. Taxpayers interested in these procedures should seriously consider consulting legal counsel before making any decisions.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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