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On June 26, 2012, the IRS announced new streamlined filing compliance procedures for non-resident U.S. taxpayers to go into effect on September 1, 2012.
These procedures FBAR Filings are being implemented in recognition that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), Form TD F 90-22.1, but have recently become aware of their filing obligations and now seek to come into compliance with the law.
All of these new tax procedures are for non-residents including, but not limited to, dual citizens who have not filed U.S. income tax and information returns.
Description of the New FBAR Filing Streamlined Procedure
This streamlined procedure is designed for taxpayers that present a low compliance risk.
Very important to know and understand.
All tax submissions will be reviewed, but, as discussed below, the intensity of review will vary according to the level of compliance risk presented by the submission.
For those taxpayers presenting low compliance risk, the review will be expedited and the IRS will not assert penalties or pursue follow-up actions.
Higher Risk Cases
Submissions that present higher compliance risk are not eligible for the streamlined processing procedures and will be subject to a more thorough review and possibly a full examination, which in some cases may include more than three years, in a manner similar to opting out of the Offshore Voluntary Disclosure Program.
Taxpayers utilizing this procedure will be required to file all delinquent tax returns, with appropriate related information returns for the past three years and to file delinquent FBARs (Form TD F 90-22.1) for the past six years.
Tax Payments or Payment Due
Payment for the tax and interest must be remitted along with delinquent tax returns.
Retroactive relief for failure to timely elect income deferral on certain retirement and savings plans where deferral is permitted by relevant treaty is available through this process.
The proper deferral elections with respect to such arrangements must be made with the submission.
This procedure is available for non-resident U.S. taxpayers who have resided outside of the U.S. since January 1, 2009 and who have not filed a U.S. tax return during the same period.
These taxpayers must present a low level of compliance risk as described below
Amended returns submitted through this program will be treated as high risk returns and subject to examination, except for those filed for the sole purpose of submitting late-filed Forms 8891 to seek relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty.
It should be noted that this relief is also available under the Offshore Voluntary Disclosure Program.
All tax returns submitted under this procedure must have a valid Taxpayer Identification Number (TIN).
For U.S. citizens, a TIN is a Social Security Number (SSN).
For individuals that are not eligible for an SSN, an Individual Taxpayer Identification Number (ITIN) is a valid TIN.
Compliance Risk Determination
The IRS will determine the level of compliance risk presented by the submission based on information provided on the returns filed and based on additional information provided in response to a Questionnaire required as part of the submission.
Low Risk Tolerance
Low risk will be predicated on simple returns with little or no U.S. tax due. Absent any 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 and processed in a streamlined manner.
The risk level may rise if any of the following are present:
a. If any of the returns submitted through this program claim a refund;
b. If there is material economic activity in the United States;
c. If the taxpayer has not declared all of his/her income in his/her country of residence;
d. If the taxpayer is under audit or investigation by the IRS;
e. If FBAR penalties have been previously assessed against the taxpayer or if the taxpayer has previously received an FBAR warning letter;
f.. If the taxpayer has a financial interest or authority over a financial account(s) located outside his/her country of residence;
g. If the taxpayer has a financial interest in an entity or entities located outside his/her country of residence;
h. If there is U.S. source income; or
i.If there are indications of sophisticated tax planning or avoidance.
Taxpayers wishing to use these streamlined procedures must:
1. Submit complete and accurate delinquent tax returns, with appropriate related information returns, for the last three years for which a U.S. tax return is due.
that all delinquent information returns being filed under this procedure should be sent to the address below with the rest of the submission.
2. Include at the top of the first page of each tax return “Streamlined” to indicate that the returns are being submitted under this procedure. This is very important to ensure that your returns get processed through these procedures.
3. Submit payment of all tax due and owing as reflected on the returns and statutory interest due and owing.
For returns determined to be high risk, failure to file and failure to pay penalties may be imposed in accordance with U.S. federal tax laws and FBAR penalties may be imposed in accordance with U.S. law.
Reasonable cause statements may be requested during review or examination of the returns determined to be high risk. For a summary of information about federal income tax return and FBAR filing requirements and potential penalties.
Also,submit complete and accurate delinquent FBARs for the last six years for which an FBAR is due.
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