Tax

Group Applauds IRS Steps Over Citizenship Renunciation; Urges More Action

Tom Burroughes, Group Editor, September 10, 2019

articleimage

The situation of US individuals who have renounced or are about to give up their citizenship came into focus with a recent move from the IRS.

The US Internal Revenue Service is promising to forgive taxes and avoidance of penalties and interest in cases where Americans have or intend to renounce their citizenship. However, there remains a need to make it easier for expat Americans cope with the onerous IRS regime, an advocacy group has said.

Last week, the IRS said it will take the steps over limited relief in highly circumscribed circumstances. It applies to individuals who have not filed US taxes, who owe a total of no more than $25,000 over the recent six years and who have net assets of less than $2 million. Importantly, these taxpayers’ non-compliance must be non-willful. In other words, they must not have known about their obligations and deliberately failed to pay taxes.

In an explanatory note, American Citizens Abroad said the new rules are “on the table for an indeterminate period.” ACA said the move provides a small amount of help for so-called “Accidental Americans” as well as others who, while not accidental, simply did not know about all the requirements for taxpayers living overseas.

“Taxpayers, including small and largely innocent taxpayers, must be careful, in their excitement, not to represent to the IRS that they were `non-willful’, while at the same time knowing that this is not true. What was, on the face of it, a civil tax problem would then morph, possibly, into a more serious problem. People should step carefully,” Glen Frost, Frost & Associates-Washington, DC, said in the ACA’s note

“This is a helpful step for a small population of individuals who have left or are going to leave the US tax system. ACA would like to see Treasury Department take a similar modest step by relieving American expats from some of the consequences of FATCA, by putting a Same Country Exemption in the FATCA regulations, which could be done immediately, without legislation. And Congress should take a big step towards enacting residency-based taxation by holding hearings. This is the number one ‘ask’ on our list,” Marylouise Serrato, ACA’s executive director, said.

Unlike most nations that tax citizens based on residency, the US taxes citizens regardless of where they live. Under the Foreign Account Tax Compliance Act, aka FATCA, foreign financial institutions have tougher new compliance obligations to establish whether they have US clients. A consequence is that some non-US banks no longer serve expat Americans. A number of high-profile individuals' cases have been mentioned, such as Meghan Markle, now part of the British Royal Family, or UK Prime Minister Boris Johnson, who was born in the US.

Register for FamilyWealthReport today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes