Posted by Nick Day on 05 Jul 2012

The IRS announces efforts to help “delinquent” US Taxpayers

The Internal Revenue Service (IRS) has announced a plan to help Non-Resident US taxpayers overseas with their tax filing requirements and foreign retirement plan concerns.

An IRS Commissioner spokesperson has said: “Today we are announcing a series of common-sense steps to help US citizens abroad get current with their tax obligations and resolve pension issues.”

Following  feedback from expat organisations the IRS is now aware that some US taxpayers living abroad have failed to file US federal income Tax Returns or Reports of Foreign Bank and Financial Accounts (FBARs) on time and need help as the tax payers want to comply with the law.

The IRS has proposed new procedures to apply from 1 September 2012 that will allow taxpayers who have low risk factors to catch up with their tax filling without facing penalties or prosecution.  These citizens will generally have simple  Tax Returns and owe $1,500 or less in tax for any of the covered years.

If there are indications of complex tax planning or avoidance or if there is material economic activity in the US the risk level will increase as the income and assets of the taxpayer rise.  Further risk factors would include any additional history of non-compliance with US tax law and the amount and type of US source income.

The new IRS procedures should also allow resolution of particular issues related to certain foreign retirement plans.

Taxpayers filling their Tax Returns using the recently announced procedures will also be required to submit appropriate related information, for the past three years, and to file offending FBARs for the past six years. Payment of any federal tax and interest due must accompany the submission.

Submissions from taxpayers that present a higher compliance risk will be subject to a comprehensive review and possibly a full examination, which could cover more than three tax years.

Any taxpayers who are in a situation where they are concerned about the risk of penalties are advised that the new procedure will not provide protection from criminal prosecution.

If you are a US tax return filer who lives in the UK, completion of your US tax returns may well have an impact on your UK tax affairs.

For example, you will need to decide whether to file your UK tax return on the “arising basis” (reporting world-wide income but claiming credits for US/overseas tax payable) or the “remittance basis” which could apply if you are not domiciled in the UK and can mean you avoiding UK tax on non-UK income/gains unless the income/gain is remitted i.e. brought to the UK.  This is a highly complex area and we recommend you seek qualified, professional advice.

We partner with a firm of US tax advisers and can coordinate your US/UK affairs as necessary to take into account your particular circumstances.

If you would like any advice regarding the above article please contact us on 01962 856 990 or customerservice@taxinnovations.com.