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News – 30.10.24
Autumn Budget 2024: Were promises fulfilled or broken?
The Budget focused on Labour's bold plans to address the UK's finances and invest in infrastructure across health, education, housing, and transport. … Read more
Insight – 01.11.24
What to expect in the upcoming US election 2024 – Harris vs Trump tax policies
Here's what to expect in the upcoming US election 2024 – Harris vs Trump tax policies … Read more
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The IRS, to its credit, recognised the problems encountered by such non-wilful US individuals and so introduced the Streamlined Filing Compliance Procedures, with specific rules for taxpayers residing outside of the US. This allows them to get up to date without having to file every single tax return or form that they have missed. Considering some taxpayers could have been outside of the US for decades this is a very helpful relief. There is also a version of this program for US residents but in this article we are focused on non-residents.
Historic reporting obligations should be rectified as soon as practical once you realise that there’s a problem. It’s certainly better to go to the IRS before the IRS notices and begins to ask its own questions.
There are two main advantages for this program; the limited number of filings required and the penalty protection.
In most cases, if you qualify you will be required to file three years of late income tax returns or amended returns to correct errors, along with six years of late Foreign Bank Account Reports. If you’ve been out of the US for longer than three years, this can result in a significant reduction in your filing obligations and therefore in both the cost and hassle of getting up to date. If you own a non-US business, you may be required to go back to 2017 in certain situations due to rules in place for that year.
If you qualify, you will not be subject to failure to file or failure to pay penalties, accuracy related penalties, information return penalties or FBAR penalties. Considering the civil penalties for the latter can be up to $10,000 per failure to file, that is clearly of great benefit. Any tax due would need to be settled and late payment interest would also remain payable.
To qualify for the Streamlined program, your non-compliance will need to be considered “non-wilful”. The IRS defines this as “conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law”. Careful consideration should be given to all relevant facts and circumstances to make this determination, and part of the program requires an explanation to be provided to the IRS in support of this.
You will qualify for the non-resident side of the program if you did not have a US abode and you were physically present outside of the US for at least 330 full days in at least one of the three years where returns are required. The location of an abode is based on family, economic and personal ties and is not necessarily just where property is owned.
If you are eligible, the Streamlined program remains an excellent way to get up to date with US tax filing obligations.
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