The Shape of Tax to Come

A Tax & Estate Planning blog for 21st-century Texans

IRS offers new procedure for US expats to correct their failures to file

In I.R.S. News Release 2012-65, the IRS announced a new procedure for US taxpayers living outside of the USA to correct existing failures to file tax returns, information returns, and FBARs. You’ll need to pay your back taxes and interest. The details are not yet finalized, and the procedure will not start until September 1 4, 2012.   The intensity of the review will depend on the compliance risk posed by each taxpayer’s situation (i.e., more attention will be paid to “whales” than will be paid to “minnows”). Participating in this new procedure will not necessarily prevent criminal prosecution by the IRS or DOJ.


  • The IRS finally gets around to recognizing that citizenship-based taxation (which also covers non-citizen green-card holders) creates a problem for people who have left. As long as U.S. taxpayers are required to file full tax returns, plus extra information returns to report their foreign accounts, the IRS should expect to have non-compliance problems.
  • If an expat has stayed out of the IRS’s way this long and has no plans of coming back to the U.S.A., why would he or she announce a problem to the IRS?
  • The goal should be recognizing that once these people leave, we are better of letting them go instead of trying to squeeze them for revenue. But that would just might make sense. . .

The Gory Details (Abridged)

Perhaps as a result of someone telling them to be nice, the IRS today announced a new procedure for obvious tax cheats U.S. taxpayers living abroad who haven’t filed all of their returns. If you’re a US taxpayer living outside of the USA, then this procedure will allow you to file past-due federal tax returns and Reports of Foreign Bank and Financial Accounts (FBARs), pay your taxes, and get on with your life (maybe).

The new procedure won’t start until September 1, 2012, and the details haven’t been finalized. (Given that September 1 is the Saturday before Labor Day,  I guess they mean September 4.) As part of the new procedure, you’ll need to file past-due tax and information returns (if any) for 2009, 2010, and 2011, and file delinquent FBARs going back to 2006. You’ll also need to pay any tax and interest that are due.

The IRS has not yet decided if you need to tell them why you were such a misguided fool as to think you could escape them.  But if you are going to make a reasonable-cause argument for your failures to file, you will need need to submit statements detailing why you have reasonable cause. If you have a Canadian RRSP, then you’ll have some special requirements, too.

The intensity of the IRS’s review of your situation will be determined by the level of “compliance risk” you pose. Basically, the IRS will quickly review and process “low compliance risk” taxpayers (i.e., “minnows” owing less than $1,000 in taxes per tax year, according to the release). Once processed, the low-compliance-risk taxpayers will be allowed to go on with their lives without additional penalties.  But “higher compliance risk” taxpayers (e.g., “whales” or “traitors”) will almost certainly be guaranteed to have their back molars inspected by the IRS, including a review of more than three years of returns (but probably not more than six).

Participating in this procedure will not necessarily stop the IRS or DOJ from bringing a criminal prosecution if they determine that your “particular circumstances warrant such prosecution.” So, this procedure may not be the best option if you (and your advisers) think you may be facing criminal charges.

Read more here and here

June 26, 2012 Posted by | Uncategorized | , , , | Leave a comment

New York Times: Why Can’t the IRS Help Fill in the Blanks?:

For many taxpayers, filing out simple returns is still a major chore.  There has been a growing movement to have the IRS provide taxpayers with pre-filled returns to take much of the headache out of the return process.

Requiring taxpayers to file returns without being told what the government already knows makes as much sense “as if Visa sent customers a blank piece of paper, requiring that they assemble their receipts, list their purchases — and pay a fine if they forget one,” said Joseph Bankman, a professor at the Stanford Law School.

Many developed countries now offer taxpayers a return containing all information collected by the taxing authority — to “get the ball rolling by telling you what it knows,” Mr. Bankman says.

It’s a stunningly reasonable idea. When you prepare your return, why can’t you first download whatever data the Internal Revenue Service has received about you and, if your return is simple, learn what the I.R.S.’s calculation of your taxes would be? You’d have the chance to check whether the information was accurate, correct it as needed and add any pertinent details — that you’re newly married, for example, or have a new child — before sending it. Far better to discover problems early with the I.R.S., whose say matters more than third-party software’s best guess.

The I.R.S., however, isn’t rushing to offer returns that are already filled in. In the 2009 report to Congress of its Taxpayer Advocate Service, it noted that during the 2008 presidential campaign, Barack Obama proposed giving taxpayers “the option of pre-filled tax forms to verify, sign and return.” The report said “it is not feasible at this time” because the agency receives W-2 data from the Social Security Administration and 1099 data from financial institutions too late in the filing season, “much later than most eligible taxpayers would be willing to wait.”

January 24, 2010 Posted by | Uncategorized | , | Leave a comment


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