IRS forgives taxes for certain U.S citizens renouncing citizenship
On September 6, 2019, the IRS announced "Relief Procedures for Certain Former Citizens", a new amnesty program for certain U.S. citizens who have renounced, or intend to renounce, their U.S. citizenship.
Among other requirements, you must have renounced U.S. citizenship after March 18, 2010, and have never filed a U.S. Form 1040 income tax return.
The relief is also good news for certain individuals (referred to as "accidental Americans") who are U.S. citizens because they were born outside the U.S. to a U.S. citizen parent.
If you meet all the eligibility requirements, the IRS will forgive all past income tax and penalties, including penalties on failure to file certain international information forms,
as well as any expatriation tax (exit tax), and you will not be considered a "covered expatriate".
The forgiveness of the expatriation tax is important because individuals who renounced, but did not file IRS Form 8854, are subject to the expatriation tax,
including but not limited to, tax on the potential deemed disposition at fair market value of foreign pension plans. It appears the US $10,000 penalty for late filing of IRS Form 8854 is also forgiven.
The amnesty does not apply to long-term residents (green card holders) and will not last indefinitely.
In addition to the above, you must meet the following requirements:
- Your net worth did not exceed US $2 million at either the time of the expatriation (renunciation), or the time of entering the amnesty program.
(To the extent real estate, stock, and other values are likely to increase in future years, individuals should consider acting sooner, rather than later).
- Your aggregate federal income tax liability is US $25,000 or less for the year in which you renounce, plus the 5 prior years, but excluding any interest and penalties.
(For many U.S. citizens living outside the U.S., there may be little or no annual U.S. tax liability because of the foreign tax credit and/or the foreign earned income exclusion).
- You file complete U.S. income tax returns (including all international information reporting forms) for the renunciation year and the five prior years, and you attach IRS Form 8854 to the renunciation year.
- Your past noncompliance was due to non-willful conduct (which the IRS defines as negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law).
The IRS announcement does not state that you must substantiate your non-willfulness.
For individuals who are eligible for this amnesty program, it is superior to the existing amnesty programs because there is no restriction based on the number of days
the individual has been present in the U.S., or whether the individual has an abode in the U.S., and apparently the non-willfulness does not have to be substantiated.