tax amnesty program

As per the estimates of the US State Department, more than 9.6 million US citizens are currently residing abroad. The United States is one of the few countries that impose a tax on its migrated citizens’ world income. The US expats must apprehend the fact that their liability towards the US Government does not end so quickly. Not being a resident of the US does not relieve you from the country’s tax filing obligations.

Nevertheless, many expatriates who start residing abroad tend to remain negligent and may invite troubles from the IRS. The expats must stay vigilant about their impending liabilities. The IRS was itself jaded from the increased discrepancies among the expatriates in meeting their tax obligations.

In 2012, with the bid to motivate the expats to conform to their US tax onuses, the IRS unveiled an amnesty program. The introduction of the Streamlined Filing Procedures scheme was a promising initiative to promote expat tax compliances.

Understanding the meaning of an Amnesty Program

An amnesty program is basically an initiative from any government or sovereign power to extend pardon to a specific class of people who broke certain regulations. The IRS launched a tax amnesty program for the expatriates in the form of the Streamlined Filing Procedures scheme. This program is open for only those taxpayers who certify that they have unintentionally failed to report their foreign incomes.

Streamlined Filing Procedures Program-2012

IRS established the program in addition to the prevailing Offshore Voluntary Disclosure Program.

It was available to individuals outside the United States. The scheme acted as a less stressful choice over the voluntary disclosure program. It invited individuals to file their unreported foreign incomes and assets with the IRS without the risk of criminal prosecution. There was a tax threshold of $1500 for the foreign taxpayers wanting to use the program. IRS considered the bunch of taxpayers falling within this threshold limit as the less risky category.

Amended Streamlined Filing Procedures Program-2014

The streamlined filing procedures got amended to broaden its purview and bring more US taxpayers under its bracket. The eligibility criteria got extended to bring even the resident US taxpayers. IRS observed that the number of expats falling beyond the threshold was quite high. It removed the tax threshold of $1500 and the risk assessment process used previously under the program in 2012. Hence, the amendment aimed at bringing more taxpayers under the benefit.

Thus, the amnesty program has opened its doors to both non-residents and residents of the United States. One can refer to the part of the program covering US residents as the Streamlined Domestic Offshore Procedures. The sub-part of the program already available for non-residents can be termed as the Streamlined Foreign Offshore Procedures. However, the applicability of the streamlined filing is subject to some conditions.

Eligibility conditions for the present program of Streamlined Filing Procedures

Let us understand the overall criteria for eligibility under the Streamlined Filing Procedures. This program is open for only individual taxpayers. As stated earlier, individual taxpayers residing in the US and outside the US fall under the program. All taxpayers desiring to disclose under the Streamlined filing procedures need to fulfill the following conditions.

  1. They need to certify that their conduct of non-compliance with the tax regulations was non-intentional

All the taxpayers who want to use the amnesty scheme have to certify their non-conformance was unintentional. Certify that the inability to disclose income, submit required information returns such as FBARs, and the non-payment of taxes was non-wilful. As per legal definition, non-wilful conduct means conduct resulting from a mistake, negligence, or inadvertence. There is no malicious intent involved in the failure to abide by the law. It is essential to declare that the delinquency of the taxpayer does not include any premeditation.

  1. The taxpayers should have a proper Tax Identification Number (ITIN)

The individuals who want to use the streamlined filing procedures must possess a valid Tax Identification Number. Individuals like the US Citizens or resident aliens can get a tax identification number, which acts as a social security number. The people who are not entitled to a tax identification number cannot file their return as per the streamlined filing procedures.

  1. The taxpayers whose returns are under civil examination of the IRS remain ineligible

There are taxpayer’s, whose returns for any previous tax years are under a civil investigation from the IRS. Such taxpayer shall get disqualified from using the streamlined procedures.

  1. The taxpayers who fall under criminal investigation of the IRS cannot use the program

A taxpayer shall remain barred from using the streamlined filing procedures if the IRS is conducting a criminal investigation against him.

  1. Before using the Streamlined Filing, the taxpayers must pay dues under previous penalty assessments

A taxpayer who filed an amended tax return previously concerning foreign assets or income remains eligible for the Streamlined Filing Procedures. However, he should pay any applicable penalty before using the streamlined filing procedures.

Compliance requirements under the Streamlined Filing Procedure Program

As part of the streamlined filing procedures, a taxpayer must submit the following information:

  • File income tax returns for the past three years. A taxpayer must also file amended returns if he has filed any incorrect returns in the preceding three years.
  • The FBAR (Foreign Bank Account Reporting) form of the immediately preceding six years. Under the streamlined program, one needs to file the FBAR, whether or not the balance in all the non-US accounts exceeds $10,000.
  • A signed statement is called Form 14653. It is called “Certification by US person residing outside the US.” It certifies that the taxpayer is eligible for the streamlined program, and his failure to report his income was non-wilful.

IRS shall consider all tax returns submitted under the streamlined filing program as any other regular federal return.

Options for taxpayers ineligible for the Streamlined Filing Procedure Program

A person who is ineligible to report his income under the Streamlined Filing Program due to willful conduct can opt for following reliefs:

  • Delinquent FBAR Submission Procedures
  • IRS-Criminal Investigation Voluntary Disclosure Program
  • Delinquent International Information Return Submission Procedures

Applicability of Penalties on the users of the Streamlined Filing Procedure Program

The Streamlined Filing Procedure Program is an amnesty program. Hence, if a person duly files his returns and pays his taxes under the program, he will not remain liable for any FBAR penalties or late filing or delayed payment penalties.

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