The IRS has significantly improved its existing programs that
enable U.S. citizens living abroad to become compliant with their
U.S. tax filing obligations without being subject to any penalties,
and has also made significant changes to the separate existing
offshore voluntary disclosure program (OVDP) for taxpayers that
have willfully failed to report offshore accounts.
Canadian-resident U.S. citizens who have not been filing tax
returns should review the new procedures which may cancel out any
penalties they otherwise would owe. The new procedures are
Taxpayers who have willfully failed to report offshore accounts
or assets and are considering entering into the OVDP should make
note of the August 3, 2014 deadline mentioned below to avoid
increased penalties and the June 30, 2014 deadline for transitional
Some key highlights
The existing so-called "streamlined" procedures for
non-resident, non-compliant taxpayers have been expanded
significantly to permit many more non-filers to qualify for full
abatement of penalties. Like the existing procedures, the new
procedures require taxpayers to file tax returns for the three most
recent years, and to file foreign bank account reports (FBARs) for
the six most recent years. The new procedures eliminate the
requirement that the taxpayer's unreported tax liability not
exceed $1,500. They also eliminate the risk assessment process and
an associated questionnaire under which many taxpayers who were
identified as having indications of tax avoidance (e.g., bank
accounts outside of the taxpayer's country of residence) were
ineligible for the streamlined procedure. These streamlined
procedures were originally intended to help Canadian-resident U.S.
citizens who were not in compliance with their U.S. tax filing
obligations, but many such individuals could not meet the
restrictive requirements. Under the new procedures, taxpayers will
merely be required to certify that their non-compliance was not
willful and provide a reason for the failure to comply. The new
changes should permit many more Canadian-resident U.S. citizens to
become compliant without facing penalties.
The OVDP for taxpayers who willfully failed to report offshore
assets remains in effect, and the 27.5% penalty continues to apply
in many cases. However, certain voluntary disclosures filed on or
after August 3, 2014, will face a 50% penalty on the maximum value
of unreported assets. The higher penalty will apply to accounts
held at institutions or through facilitators that have been the
subject of a public disclosure, and that either:
Are or have been under investigation by the IRS or the U.S.
Department of Justice;
Are cooperating with the IRS or the Department of Justice in
connection with reporting of U.S. account holders, or:
Have been identified in a court-approved issuance of a summons
seeking information about U.S. taxpayers who may hold financial
accounts (a "John Doe summons").
An initial list of 10 such entities appears on the IRS website
Taxpayers who are considering a voluntary disclosure may need to
act by August 3rd to avoid the higher penalties.
There is a new streamlined procedure for U.S.-resident taxpayers
whose failure to report offshore assets and income was not willful.
Taxpayers who qualify for this procedure (which does not provide
the protection against criminal prosecution that is available under
a full-blown voluntary disclosure) will pay a penalty equal to 5%
of the unreported offshore assets. Under a special transition rule,
taxpayers who enter the OVDP before July 1, 2014, can request that
their case be considered for eligibility for the 5% penalty if the
facts indicate the failure to report was not willful. Taxpayers who
enter the OVDP after June 30 will not be eligible for the 5%
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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