Tax forms
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For certain clients who are former U.S. citizens who have never complied with their U.S. tax-filing obligations, there’s now a way to get compliant and receive relief for back taxes. But these cross-border clients must meet certain requirements.

Earlier this month, the Internal Revenue Service (IRS) published new relief procedures for certain former citizens. The procedures are a way for clients who have renounced U.S. citizenship after Mar. 18, 2010 (when the Foreign Account Tax Compliance Act passed), or who intend to renounce, to avoid being taxed as a “covered expatriate” under Section 877A of the U.S. Internal Revenue Code as a result of their renunciation.

“Relinquishing U.S. citizenship and the tax impacts of relinquishing U.S. citizenship are serious matters that involve irrevocable decisions,” the IRS says in the introduction to its new procedures. “Consider consulting legal counsel before making any decisions about relinquishing U.S. citizenship.”

Read: Renouncing U.S. citizenship after U.S. tax reform

Clients must meet several other criteria to be eligible.

A key requirement is that the client’s U.S. tax noncompliance is non-wilful. The IRS describes non-wilful conduct as “due to negligence, inadvertence or mistake, or conduct that is the result of a good faith misunderstanding of the requirements of the law.”

For example, many of those who are eligible for the new procedures may have lived outside the U.S. most of their lives and been unaware they had U.S. tax obligations, the IRS said in a release. Several hypothetical client examples are outlined on its website (see Q9 under “Relief procedures FAQs” on the IRS website).

The client also must not have filed U.S. tax returns as a U.S. citizen (or resident), and must owe limited back taxes to the U.S. and have net assets of less than US$2 million. (Only individuals are eligible, not estates, trusts, corporations, partnerships or other entities.)

Specifically, the client must file outstanding U.S. tax returns (including all required schedules and information returns) for their year of expatriation and the five preceding years, and if the client’s tax liability doesn’t exceed a total of US$25,000 for these six years, they’re relieved from paying U.S. taxes, as well as penalties and interest.

The new procedures don’t have a termination date, but the IRS said it will announce a closing date prior to ending the procedures.

It will also provide a webinar about the procedures “in the near future,” the release said.

For full details, read the IRS relief procedures for certain former citizens.

Cross-border clients with who don’t meet the criteria for the new procedures may be eligible for the ongoing streamlined filing compliance procedures.

Also read:

The CRA sent more than 700,000 documents to the IRS in 2017

Tax relief could be coming for Americans in Canada

How U.S. personal tax changes affect estate planning