IRS Update for Non-Resident Taxpayers

By Freed Maxick International Tax Team on September, 6 2012
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Freed Maxick International Tax Team

New Streamlined Filing Compliance Procedures for Non-Resident U.S. Taxpayers

FBARThe instructions to the new streamlined filing procedures for nonresident US taxpayers were released by the IRS on August 31, 2012. The procedures, which went into effect on September 1, 2012, will  reduce the number of filing years for overseas US taxpayers who are considered to  be “low compliance risks.”
 
Taxpayers utilizing the new procedures will be required to file delinquent tax returns for the  past three years, and delinquent FBARs for the past six years. The good news is that these procedures are far less burdensome than the  filings required under the current 2012 Offshore Voluntary Disclosure Program (OVDP). 

For more details, please see our previous post New Procedure to Catch-Up on Delinquent Tax Filings for Non-Resident U.S. Taxpayers

The August 31 announcement provided more detail concerning the following:  

• Eligibility for the new procedures,
• Who  is considered to be a “low compliance risk”
• Instructions on how to use the new procedures to qualify for the more favorable filing requirements.

Who Qualifies For the New Procedure – Definition of “low risk” individuals?

• (1)    Simple returns with little or no U.S. tax due
• (2)    Less than $1,500 of tax due in each of the years filed
• (3)    Risk level rises as a taxpayer’s income and amount of assets  rises
• (4)    No indications of sophisticated tax planning or tax avoidance
• (5)    No material economic activity in the United States
• (6)    No additional history of noncompliance with United States tax law
• (7)    The amount and type of United States source income.

It should be noted that those taxpayers that are considered “higher risk” are not eligible for the new procedure and will be subject to a more thorough review and possibly a full examination.

The instructions stipulate the following steps that must be taken for eligible taxpayers:

1. Submit complete and accurate delinquent tax returns for the last three years for which a U.S. tax return is due.

2. Include at the top of the first page of each tax return "Streamlined" to indicate that the returns are being submitted under the new procedure.

3. Submit payment of all tax and interest due and owing  with the returns.

4. Submit complete and accurate delinquent FBARs for the last six years for which an FBAR is due.

5. Submit a complete and signed Questionnaire recently developed by the IRS. The Questionnaire is entitled “Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer Taxpayers Questionnaire”.

6. Those seeking relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty are required to submit various statements and forms along with a statement signed under penalties of perjury describing the events leading to the failure and discovery of the failure and whether the extent to which the taxpayer relied on a professional advisor.  

7. This program has been established for non-resident non-filers. Generally amended returns will not be accepted in this program. However, amended returns filed for the purpose of submitting late-filed Forms 8891for relief from failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty will be accepted.

It should be noted that this new procedure does not provide taxpayers with protection from criminal prosecution if the IRS and Department of Justice determine that the taxpayer’s particular circumstances warrant such prosecution.  As a result, taxpayers concerned about criminal prosecution are advised to consult their legal advisers about eligibility under the 2012 OVDP that is still in place.

At Freed Maxick, we try to gain an understanding of the issues you face. Our international tax professionals serve businesses in all 50 States, dedicating their time advising companies like yours on international tax issues. We draw upon our multi-national knowledge to implement global tax strategies relevant to your company. To learn more about how we may be able to help you Contact Us today.

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