How does the streamlined tax amnesty program work?
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If you are a U.S. citizen who has been living abroad for some time, you are probably filing local tax returns but may have forgotten that you are required to file tax returns in the U.S. If so, you can correct this unintentional blunder so you can avoid having any serious consequences later on.
Enrolled Agent (EA), Darryl has worked in the U.S. expat tax industry for a long time now and since the implementation of the Streamlined Amnesty program in 2012, he has specialized in how it works.
Here Darryl gives us a detailed explanation of how the program works and answers questions about how this IRS program can help U.S. citizens living abroad get back into compliance. This is essential for those who have not been filing their tax returns correctly or who were unaware of their obligation to file.
Even though the Streamlined Amnesty tax program is quite complicated, it is by far the best announced yet, according to Darryl, because people can now rectify these mistakes and move forward correctly.
Who is eligible for this amnesty program?
Darryl outlines that the most important criterion for qualifying is that the person applying for the program must have lived abroad for at least one of three years or for at least for 330 days.
Second, it is important that it was genuinely unintentional, and that the person was not aware of the fact that even though living abroad, they are still required to file a tax return as long as they are a U.S. citizen.
Third, the person has to file a letter of promise that from this point on, after covering the three years under amnesty, they are aware of their annual requirement to the IRS.
What about those citizens who left many years ago?
There are many citizens living abroad who have been doing so for decades and were not aware of the need to submit an annual return. Darryl stresses that each case is different and that as long as these missed tax filings were unintentional, then there is a solution or every case.
What is the correct way to file an IRS tax return if you are living abroad?
One of the most common mistakes made by citizens abroad is that they file incorrectly. People often forget to include their income from abroad or forget to file their stockholding in a company. It is often difficult for people to follow the ever-changing tax regulations, and these types of mistakes are common.
People have a right to take advantage of the amnesty program if their mistake were unintentional. Darryl stresses that often Americans are rarely aware that even companies registered abroad need to be filed on their tax return. The amendments can be made to previous tax filings under the amnesty program for three years, on one or all three of the tax returns, depending on where the errors were made.
I want more information about streamlined tax amnesty program
Are there any fines or penalties in filing an amended tax return?
There are no late payment penalties, late filing penalties or accuracy-related penalties for those taking advantage of the amnesty program as long as all the other criteria are met. This clause also includes those filing amended tax returns. Americans living abroad only pay interest on any overdue amounts for those last three years, the same as people living in the U.S.
How many tax years are people eligible for if they have been living abroad for over three years?
No matter how long the taxpayers have been living abroad, if they are eligible to pay tax, they will only have to file for the three last years and not for all the years they have been abroad. Those asking for amnesty now will have to file for 2021, 2022, and 2023, which is due soon. These must be filled in as they are always done, including all income allowing them to take advantage of all the exclusions and deductions. Any tax that is owed will have to be paid with the interest for that year.
What happens to the tax that should have been paid for the years prior to the amnesty?
Once someone who is qualified is accepted to the amnesty program by the IRS, they do not have to pay tax for any of the other years prior to the three included in the program. The three years are enough to ensure that the person is tax compliant from that moment forward.
What about Green Card holders?
Green Card holders are also eligible for this program as long as they are still legally American citizens and meet the criteria.
Do amnesty seekers qualify for refundable credit and can they back date it?
It is possible for amnesty seekers to get a full refund from the IRS, according to Darryl, but this depends on each individual case.
Getting the paperwork together
- Three full calendar years of complete U.S. tax returns amended if necessary, to include all income, expenses, deductions and other related information.
- Foreign Bank Account Report (FBAR) for six years, which should also include insurance, investment plans and brokerage accounts. This is for informational purposes and the highest balance gets reported for the six years, but it won’t be taxed, nor is there an FBAR penalty, no matter what the amount.
- Statement of Fact or an Offshore Certification which the person has to explain why they did not file and pay for the previous years. This statement is where the promise is made that the person will continue to file annually going forward.
Who cannot seek amnesty?
People have to take part in the program voluntarily. Those who have previously received notices from the IRS for outstanding issues cannot claim to have unintentionally not filed and their application will definitely be turned down. These issues have to be addressed before seeing if they qualify.
How long will the program run?
According to Darryl, this program has not only brought significant revenue into the U.S., but it is a wonderful opportunity for people to take advantage of its leniency. Things could change and Darryl advises that people take advantage of it sooner rather than later.
Most people who are paying tax at their current place of residence will probably not qualify to pay tax, unless they are high income earners, but with the program they will also become tax compliant in the U.S.
At Expat US Tax the process is made easy for amnesty seekers with a 100% success rate so far in over 2,500 applications. Client requirements are streamlined, and they are taken through every step of the process.
