U.S. Taxpayers Abroad – A New, Kinder, Gentler IRS Initiative
IRS Commissioner John Koskinen announced an initiative that is expected to allow United States taxpayers who have undisclosed accounts outside the country, and who aren’t willfully evading U.S. taxes, to become compliant with U.S. laws and face reduced penalties. Although the initiative was announced earlier this month, the IRS expects to come out with all of the rules and conditions some time towards the end of June or in July.
Taxpayers who might benefit include U.S. citizens and persons holding permanent residency status (green card holders) who have lived outside the U.S. for most of their lives. The IRS reasoned that many such taxpayers have only recently realized that they have to file U.S. tax returns and disclose the existence of offshore accounts.
The new procedures will be an expansion – and not a replacement – of the existing Offshore Voluntary Disclosure Program (OVDP). Earlier OVDPs were set in place in 2009 and modified in 2011 and 2012. These OVDPs, which are also available to persons living in the U.S., have brought more than 43,000 people into compliance and have collected in excess of $6 billion in taxes, penalties, and interest for the U.S. government.
Though roundly applauded by taxpayers and professionals alike, the timing of the announcement has many people wondering what to do with 2013 tax filings as taxpayers who live abroad generally have until June 16 to file their 2013 tax returns and June 30 to file 2013 Reports of Foreign Bank and Financial Accounts (FBARs). The new announcement causes a few quandaries for taxpayers who would qualify for more lenient treatment but who are currently in the OVDP (and previously came forward to minimize their exposure to taxes, penalties, and interest) and for those who have already paid onerous assessments, not to mention significant professional fees.
Watch for more details as this story continues to unfold.