This is a Thought Leadership Article by PrimeGlobal firm Buzzacott which looks at new tax reporting reliefs for expatriating US citizens.

The IRS has announced a new procedure specifically for US citizens who have, or intend to, expatriate and give up their citizenship. Here, Alex Porteous shares how this path may be preferable to the current Streamlined system due to its simplicity and generous additional relief.

For several years, the Internal Revenue Service (IRS) Streamlined procedure has been a popular path for US citizens to become compliant with their US tax obligations prior to renouncing their citizenship. Recognising this, they have introduced a new procedure aimed specifically at this population, providing a simpler route to extricating themselves from the US tax system and allowing those who have already expatriated to tidy up their tax affairs.

American citizens who have renounced their citizenship since 18 March 2010 (when FATCA originally came into effect), or who intend to do so, may use this option if they meet the following criteria:

  • They have no filing history as a US citizen or resident and their failure to previously file was non-wilful.
  • Their net worth is less than $2,000,000 at the time of expatriation and at the time of making their submission.
  • They complete the required Federal tax returns and informational reports for the five years prior to expatriation and the year of expatriation have, in aggregate, a $25,000 or less tax liability for those years.

It is clear this is particularly intended for “Accidental Americans”, often those who picked up US citizenship by virtue of being born to US parents abroad or were born in the US but left while young. We have certainly seen examples of people discovering they were Americans when passing through immigration at JFK Airport and being asked why they aren’t travelling on their US passport.

The tax threshold is particularly worthy of note as the IRS will not collect any tax that is $25,000 or less. For those who can benefit, this is very generous compared with previous programs although such a cliff edge threshold is perhaps a little unfair on someone who discovers their liability is $25,001. This also shows it is essential that all tax returns are prepared prior to expatriation in case the liability exceeds $25,000 so that alternative plans can be made and the Streamlined procedure can be considered instead.

Apart from the straight tax relief above, this procedure is attractive as it does not require a separate form and statement be completed to explain non-wilful behaviour and it does not require a Social Security Number, something that can be an onerous and time-intensive task to obtain. Furthermore, the IRS will write to confirm that the submission was received and was complete. While they still reserve the right to audit the returns, this element of certainty is most welcome compared with current practice where generally “no news is good news”.

There is no set timeframe for how long this route will be available so for those intending to expatriate, now is an excellent time to become up to date. They can then move forward without the cloud of US tax reporting and FATCA hanging overhead. Furthermore, those currently proceeding under the Streamlined procedure may wish to consider if this path would be more beneficial.

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