Compliance Procedures for Non-Filing U.S. Taxpayers living in Canada.
Description of the New Streamlined Procedure
Effective September 1, 2012 the IRS implemented new streamlined filing compliance procedures for U.S. taxpayers living outside of the U.S in recognition that some U.S taxpayers living abroad have failed to timely file U.S federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), but have recently become aware of their filing obligations and now seek to come into compliance with the law. These new procedures are for non-resident U.S. taxpayers including, but not limited to, dual citizens who have not filed U.S. income tax and information returns.
This streamlined procedure is designed for taxpayers that present a low compliance risk. All submissions will be reviewed, but, as discussed below, the intensity of review will vary according to the level of compliance risk presented by the submission. For those taxpayers presenting low compliance risk, the review will be expedited and the IRS will NOT assert penalties or pursue follow-up actions.
Taxpayers utilizing this procedure will be required to file delinquent tax returns, with appropriate related information returns (e.g. Form 3520 or 5471), for the PAST THREE years and to file delinquent FBARs (FinCEN Form 114 which superseded the former Form TD F 90-22.1) for the PAST SIX years. Payment for the tax and interest, if applicable, must be remitted along with delinquent tax returns.
This procedure is available for non-resident U.S. taxpayers who have resided outside of the U.S. since January 1, 2009, and who have not filed a U.S. tax return during the same period. These tax payer must present a low level of compliance risk as described below.
Amended returns submitted throughthis program will be treated as high risk returns and subject to examination, except for those filed for the sole purpose of submitting late-filed Forms 8891 to seek relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty. It should be noted that this relief is also available under the Offshore Voluntary Disclosure Program.
Compliance Risk Determination
The IRS will determine the level of compliance risk presented by the submission based on information provided on the returns filed and based on additional information provided in response to a Questionnaire required as part of the submission. Low risk will be predicated on simple returns with little or no U.S. tax due. Absent any high risk factors, if the submitted returns and application show less than $1,500 in tax due in each of the years, they will be treated as low risk and processed in a streamlined manner.
The risk level may rise if any of the following are present:
- If any of the returns submitted through this program claim a refund;
- If there is material economic activity in the United States;
- If the taxpayer has not declared all of his/her income in his/her country of residence;
- If FBAR penalties have been previously assessed against the taxpayer or if the taxpayer has previously received an FBAR warning letter;
- If the taxpayer has a financial interest or authority over a financial account(s) located outside his/her country of residence;
- If there is U.S. source income.
New reporting requirements for foreign financial assets under FATCA
A new law requires U.S. taxpayers who have an interest in certain specified foreign financial assets with an aggregate value exceeding $50,000 to report those assets to the IRS. This reporting is required since 2012. Taxpayers who are required to report must submit Form 8938 with their tax return.
For additional information contact Val Volkov, a U.S. designated CPA who can assist you with your U.S. tax filings. Val can be reached at firstname.lastname@example.org or 416-493-0444.