The IRS has announced new streamlined procedures for U.S.
citizens who are resident in Canada or other countries and who have
failed to file U.S. federal income tax returns or Reports of
Foreign Bank Accounts (FBARs). The new procedures seek to identify
certain taxpayers who present "a low compliance risk."
Submissions by such taxpayers will be subjected to an expedited
review by the IRS and will not be subject to penalties. Taxpayers
that are identified as presenting a higher compliance risk will be
subject to a more thorough review and possibly a full examination,
with no assurance that penalties or even criminal prosecution will
not be pursued. The new procedures primarily apply to taxpayers who
have resided outside of the U.S. since January 1, 2009, have not
filed a U.S. tax return during the same period, and whose tax when
computed is less than $1,500 each year.
The procedures include a list of nine factors whose presence may
cause the compliance risk level to rise. Some of these factors are
obvious, such as a failure by the taxpayer to report all of his or
her income in the taxpayer's country of residence, but others
seem unfairly to prevent innocent taxpayers from qualifying under
the new procedures. For example, a taxpayer's ownership of a
financial interest in an entity located outside of his or her
country of residence or a bank account located outside of such
country is considered a high-risk factor.
Taxpayers wishing to use the streamlined procedures are required
to submit delinquent tax returns for the last three years for which
a U.S. tax return is due and to submit FBARs for the last six
years. Taxpayers are also required to submit a completed
questionnaire designed to identify the taxpayer as a low compliance
One of the new procedures applies only to Canadian residents: a
Canadian non-resident who failed to make a timely election on IRS
Form 8891 (to defer income earned in an RRSP) can retroactively
cure the failure by filing a late election under the new
procedures. Even though, as noted above, the streamlined compliance
procedure is generally available only for taxpayers who failed to
file returns altogether, the special relief for late-filed RRSP
elections is available even for taxpayers who did file original
returns (regardless of whether they meet the tests for low
compliance risk or the $1,500 tax threshold), but failed to make
the RRSP election on their original returns.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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