2019 Relief Procedures for Former U.S. Citizens

On September 6, 2019, the Internal Revenue Service announced procedures for certain former U.S. citizens who want to get in compliance with U.S. tax laws. Taxpayers who qualify will not be liable for any unpaid taxes or penalties for the five tax years before expatriation and for the tax year of expatriation.

To be eligible for the relief procedures, the following stringent requirements must be met:

1. Taxpayer must have relinquished U.S. citizenship after March 18, 2010;
2. Taxpayer must have no filing history as a U.S. citizen or resident;
3. Taxpayer must not be a “covered expatriate” (explained further below) under IRC section 877(a)(2);
4. Taxpayer must have a net worth of less than $2 million at the time he/she makes the submission under these procedures (AND at the time of expatriation);
5. Taxpayer must have an aggregate total tax liability of $25,000 or less in the year of expatriation AND the five tax years preceding expatriation;
6. Taxpayer must submit complete and accurate Federal tax returns for the year of expatriation and for the five tax years preceding expatriation; and
7. Taxpayer must be non-willful in failing to file all required tax returns including gift tax returns, information returns, and FBARs, and in failing to pay taxes and penalties.

In order to use these procedures, taxpayers cannot be a covered expatriate under IRC section 877(a)(2), because under IRC section 877A, covered expatriates must pay an exit tax on the gain from a deemed sale of their worldwide assets. Taxpayers will generally not be considered a covered expatriate for purposes of these relief procedures if:

1. Their net worth is less than $2 million on the date of expatriation; and
2. Their average annual net income tax liability during the five tax years before the year of expatriation AND during the tax year of expatriation is less than a specified amount adjusted for inflation:
   1. $161,000 for tax year 2016,
   2. $162,000 for tax year 2017,
   3. $165,000 for tax year 2018, and
   4. $168,000 for tax year 2019.

The threshold amount is adjusted for inflation. At the end of each calendar year, the IRS publishes the new adjusted amount in its Revenue Procedure that sets forth inflation-adjusted items for the tax year.

Taxpayers who want to file under these relief procedures must submit:

1. an official document substantiating the relinquishment of citizenship;
2. a copy of their passport or birth certificate;
3. a dual-status tax return for the tax year of expatriation, including Form 8854, Initial and Annual Expatriation Statement, and information returns;
4. five Forms 1040 for the five tax years preceding the year of expatriation, including all information returns; and
5. all required FBARs for the six relevant tax years.

Taxpayers without a Social Security Number may still make a submission under these procedures. (Note: Even if you were never a U.S. citizen, you should determine your status as a resident alien or nonresident alien and file tax returns according to your status.)

If you do not meet one or more of the stringent requirements under this new procedure, you may have other options. The IRS has officially sanctioned a couple options for taxpayers who would like to get back in compliance with their US tax obligations. The Voluntary Disclosure Program and Streamlined Filing Compliance Procedures have less stringent requirements. The downside is they require taxpayers to pay unpaid taxes unlike this 2019 relief procedure for expatriates. Taxpayers who use the domestic and offshore voluntary disclosure practices and Streamlined Domestic Offshore Procedures must pay penalties as well, however, paying is likely preferable to dealing with a criminal tax matter.

There are still other options that may be available to you. Therefore, if you have unreported income from any source including foreign accounts or assets, contact us today. Our Los Angeles voluntary disclosure attorneys can help provide you with the advice and assistance needed to optimize your outcomes. Attorney and CPA Pedram Ben-Cohen has extensive large-firm experience handling sophisticated tax matters and is also a Certified Taxation Law Specialist, certified by the State Bar of California Board of Legal Specialization. Contact the tax attorneys at the Ben-Cohen Law Firm now.