Some ‘common sense’ finally prevails on IRS. IRS is announcing a series of ‘common-sense steps’ (as the IRS commissioner Doug Shulman puts it) to help U.S. citizens abroad get current with their tax obligations and resolve pension issues.
IRS is announcing a new procedure for current non-residents including, but not limited to dual citizens who have not filed U.S. income tax and FBAR returns to file their delinquent returns. This procedure will go into effect on Sept. 1, 2012. While more details will be forthcoming, taxpayers utilizing the new procedure will be required to file delinquent tax returns, with appropriate related information returns, for the past 3 years and to file delinquent FBARs for the past 6 years.
The IRS will determine the level of compliance risk presented by these submissions based on certain information provided on the returns filed, and based on certain additional information that will be required as part of the submission. Low risk will be predicated on simple returns with little or no U.S. tax due. High risk factors will include level of income and assets of taxpayers, sophisticated tax planning or avoidance, or if there is material economic activity in the US by the taxpayer, besides others that IRS may announce before the effective date of the new procedure. Absent high risk factors, if the submitted returns and application show less than $1,500 in tax due in each of the years, they will be treated as low risk. For those taxpayers presenting low compliance risk, the review will be expedited and the IRS will not assert penalties or pursue follow-up actions.
This should provide a huge relief for such ‘low compliance risk’ taxpayers, in sharp contrast to the OVDI/ OVDP which presents a scary and threatening scenario by stating that no amount of unreported income is considered de minimis for purposes of determining whether there has been tax non-compliance with respect to an account or asset and whether the account or asset should be included in the base for the 25/ 27.5 percent penalty.
Unlike OVDI/ OVDP, however, this new procedure does not provide protection from criminal prosecution if the IRS and Department of Justice determine that the taxpayer’s particular circumstances warrant such prosecution.
– NEERAJ BHATIA
CPA (US), FCA(India), AICWA (India), LL.M (Intlernational Tax-US)