Low-risk Noncompliant Expatriates

on Tuesday, 14 July 2015.

Low-risk Noncompliant Expatriates

On September 1, 2012 the IRS detailed a new streamlined filing compliance procedure for non-resident US taxpayers who have failed to comply with income tax and FBAR filing requirements.

The new procedure will allow non-resident non-compliant taxpayers to get compliant without facing "penalties or follow up actions" by the IRS if they  have a low compliance risk.  A taxpayer with a low compliance risk is someone who's tax liability does not exceed $1,500 for any year filed.

In order to participate in the program the taxpayer must have resided outside the US since Jan. 1, 2009 and not filed a return for the same period.  A qualifing taxpayer needs to file all delinquent tax returns for the past three years, file any delinquent FBARs for the past six year, and remit all tax and interest, if due, with the filings.

The IRS has warned that a taxpayer's risk level may increase if any of the following apply:

·         Any of the returns submitted through the program claim a refund;
·         There is material economic activity in the U.S.
·         The taxpayer has not declared all of his income in his country of residence, or is under audit or
          investigation by IRS;
·         FBAR penalties have been previously assessed against the taxpayer, or he has previously received an
          FBAR warning letter;
·         The taxpayer has a financial interest or authority over a financial account(s) located outside his country of
          residence;
·         The taxpayer has a financial interest in an entity or entities located outside his country of residence;
·         There is U.S. source income; or
·         There are indications of sophisticated tax planning or avoidance.

If any of the above item apply to a taxpayer they need to understand that if their risk level is elevated they could face penalties and be subjected to a more thorough review by the IRS that could go back over three years. 

This is a great chance for low risk expatriates to get compliant and avoid IRS penalties. Penalties for failing to file an FBAR report are substantial and in many cases taxpayers can eliminate these threats without increasing or substantially increasing their tax liabilities.

If you have any questions or need help getting compliant contact us below!