Foreign Offshore Provision: on top of your US tax obligations?
The requirement to file annual Tax Returns is not new and the Internal Revenue Service (IRS) is keen to remind US citizens and green card holders of their ongoing obligations.
Recognising that many Americans living outside the United States may have accidentally not filed their Tax Returns, the IRS has offered an amnesty to “regularise” their tax affairs known as the Streamlined Foreign Offshore Provision. However, there is no guarantee of how long this arrangement will be in place and it is therefore important to maximise the benefits from this provision as quickly as possible.
All US citizens, regardless of whether they are resident in the US, are required to complete and file Personal Tax Returns annually, and as recent FACTA enforcement around bank account reporting has highlighted, many US individuals that reside outside of the US are failing to file their Returns, thus ensuring that this has now become a high IRS priority.
So how does it work? Using the Streamlined Foreign Offshore Provisions, you can file the current year and the previous three years tax returns, as well as completing the annual reporting of your foreign bank accounts and their highest balance, for the past six years.
Submissions of the omitted tax returns under this scheme will not only get you reintroduced to the US system but has additional benefits in that the late filing penalties and payment penalties are waived if filed under this Provision. Tax Returns prior to those required for filing are also disregarded, and the taxpayer can look forward with confidence, knowing that everything is up to date.
Qualification for the Streamlined Foreign Offshore Provision is not guaranteed and there are some suggestions that a chequered tax history may lead to citizens having their passports confiscated. To participate, you must have a reasonable cause and excuse for omitting to file your returns and you must be able to prove that you did not wilfully omit to file your returns. Importantly you should not have spent more than 35 days in the United States for any year being submitted under this provision.
However, it is also worth noting that the Streamlined Provision can also apply for those who can be deemed to be “accidental” Americans, and this includes those individuals who have a connection to the US through birth or parents, even though they have not lived there. For those Americans who have not filed but are considering surrendering their citizenship through expatriation, getting back into the US tax system is a prerequisite and this provision can expedite this process considerably.