Expat Tax Amnesty
Expat Tax Amnesty: The U.S. expat tax amnesty rules for Non-Resident and expatriates is very forgiving. And, despite the fact that some clients have many years of non-filed tax returns, the filing requirements under the streamlined program are generally no more complex than submitting an IRS streamlined submission for U.S. residents. Complicating matters is that the IRS is still aggressively pursuing foreign accounts compliance for taxpayers worldwide. This is making expats and non-residents increasingly more concerned with amnesty and compliance — especially in light of the recent rumblings that the Internal Revenue Service will be discontinuing the Streamlined Domestic and Streamlined Foreign programs.
What is Tax Amnesty for Expats?
We will summarize the expat tax amnesty options. The main complexity in the filing of the Streamlined Procedure for non-residents and expats is the Tax Return filing — especially when a person is considered a non-resident. Generally, when a person has U.S. status, they are required to file a Form 1040.
U.S. status for individuals generally consists of:
- U.S. Citizen
- Legal Permanent Resident
- Resident under the Substantial Presence Test
When a person is a non-resident (and not considered a U.S. person), they typically file a Form 1040NR to report their U.S. income. With a 1040NR, the filer is not a U.S. person, and therefore they do not have to file an FBAR, or report their foreign assets on Form 8938.
The IRS has all but disallowed filers from filing a 1040NR as part of the Streamlined Program. This is not a hard and fast rule, but generally, the IRS dissuades the filing of 1040NR — because the 1040NR does not require the disclosure of foreign assets, investments or income – which is the primary purpose of the streamlined program.
But, not all non-residents and expats are “non-U.S. persons” for U.S. tax purposes.
Here are a Few Examples
These are three (3) examples we come across often in which an expat or “non-resident” will qualify for the Streamlined Foreign Offshore Procedures, and a penalty-waiver:
U.S. Citizen Overseas
David is a U.S. Citizen who resides outside of the United States. He has foreign assets and accounts. Despite the fact that David has not resided in the U.S. for 20-years, he still maintains his citizen status.
Result: David Files a U.S. tax return 1040.
Green Card Holder/Legal Permanent Resident
Monica is originally from Spain. She has a green card and then moved back to Spain after a few years of residing in the U.S. However, she never formally relinquished her green card status, and actually renewed it a few years back — even though she has not traveled to the U.S.
Result: Monica is a U.S. person and files a U.S. tax return 1040.
Jeffrey is a Non-Resident who met the Substantial Presence Test
Jeffrey worked in the U.S. on an H-1B for many years. Last year, he relocated back to India. During his time in the U.S., he did not report foreign accounts, assets or income. Since relocating back to India, he did not meet the Substantial Presence Test and has no U.S. sourced income.
*The look-back period is 3-years (depending on current-year filing status and overall submission strategies).
Result: Jeffrey would typically submit to the Streamlined Foreign Offshore Procedures. He would file 1040 returns for the years within the compliance period that he met the substantial presence test, but presumably would have no tax return requirement for the most recent prior years, since he had no U.S. sourced income, and did not meet the Substantial Presence Test.
International Tax & Offshore Compliance Lawyers
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