Tax Relief for Expats Starting September 1st

Yeah, that isn't worded well, and it leaves me squirming for people that could get in trouble reading it.  People in the UK don't need to pay tax if they are under the threshold, but they still need to file--otherwise there would not be tax relief for people who owe "little or no" tax.

I think you only don't have to file if you make under the personal allowances level--but even then there can be benefits sometimes to filing such as allowances that you might get.  If you are an accountant that is supposed to help people with their taxes shouldn't you know if they need to file?

Sorry about your misunderstanding.  All US citizens to file US tax returns reporting their worldwide income, unless they are under the exemption and standard deduction thresholds.   If you exceed those thresholds, and still do not owe tax because of the foreign income exclusion and or foreign tax credits, I believe you will qualify for this program ...but the final rules are not out as of this date.

All US citizens to file US tax returns reporting their worldwide income, unless they are under the exemption and standard deduction thresholds.

Sorry Diane, this is a tough site and clarity is very important here (we've all been through it).

For an individual married filing separately (MFS), if I understand correctly, the filing threshold is $3,700 (2011). The personal exemption is $3,700. But the standard deduction for under 65's is $5,800. I am under the impression that someone filing MFS with an income of $5,000 would be required to file a US tax return. Is this correct?

What I am saying...if you owe no tax for prior years, starting on this September 1 program, you will only need to file for 2009, 2010, and 2011 to be in compliance.

In the past, there was a 6 year statute ...which meant that you had to file for 6 years, if you owed no tax, to be in compliance.

Of course once you are complaint, you must file for all future years, even though you owe no tax.

I think this advice is no more than a sweeping assumption at this stage.  As OAP kindly pointed out, someone may think they fall under a "low" compliance risk and submit their three years, only to find out on IRS review that they are "high" risk.  I find it particularly interesting that the IRS states that previous history of noncompliance (i.e. more than just the three years, IMO) is an additional risk factor that can switch someone from low to high risk.

And it's those agents that will determine your level of compliance risk. What may seem a low risk simple return to us could be viewed otherwise by the IRS, even if you 'owe little or no tax'.

More details under 'Compliance risk determination' on this IRS page:

http://www.irs.gov/businesses/small/international/article/0,,id=256772,00.html

"Additional information regarding the specific factors the IRS will use to assess the level of compliance risk," will be released at a later date.

Thanks OAP for actually posting the IRS details, which was not done originally.  Anyone taking advice from the internet should always be going to the original source and reading for themselves.

 

Sorry about your misunderstanding.  

Well that is a backhanded apology!  

Sorry Diane, this is a tough site and clarity is very important here (we've all been through it).

Very true.  Experts should be prepared to back up claims to a great deal of scrutiny here.

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And my 2p, without more details.  I am highly suspicious of any VDP with the IRS at this stage.   I was still in a firm back when the 2009 FBAR VDP took place and handled quite a number of these myself.  What I also handled were people, who VDPd in good faith that they were just righting the reporting requirement, and were nailed for the 20% penalty regardless.   We are talking about the type of people here, stay at home moms and the like, who then were wiped out of their savings when they were just trying to be right with the system.  It was really appalling.

And for that reason alone, I would also recommend anyone who wants to go through a VDP, to get qualified advice.  It will be costly by less so than the potential penalties out there.  If you want to cut costs, you can always do the work yourself (complete the forms and the statements) and have a qualified accountant review.

Thanks for the clarification--much appreciated!

Announced on 31 August, the expanded information on this programme.
http://www.irs.gov/uac/Instructions-for-New-Streamlined-Filing-Compliance-Procedures-for-Non-Resident-Non-Filer-US-Taxpayers
(link using the redesigned IRS website. If you've not noticed, many past links no longer function.)

And, the questionnaire:
http://www.irs.gov/pub/irs-utl/non-resident_questionnaire.pdf

Added information includes:
"This procedure is available for non-resident U.S. taxpayers who have resided outside of the U.S. since January 1, 2009 and who have not filed a U.S. tax return during the same period."
According to the questionnaire, those who have any period of residence in the US since 01/01/2009 will not be eligible for the streamlined process, and will be treated as high risk.

A first quick read will suggest the programme may not be as benevolent as first thought (very subjective based on the individuals situation and past omissions), and has points relating to risk classification that are a bit open-ended.   

I don't think this changes anything because there is no guarantee that the IRS won't find fault with even the most saintly applicant. Any US person who hasn't been filing will still need to go to a professional to gain some measure of protection. This will be expensive and will likely cost far in excess of the actual taxes (if any) that may be owed. How is this any different from the situation before?

They should have specified definitive criteria under which small fry could get back into the system by themselves with a simplified method that didn't expose them to the risk of draconian penalties.

They should have specified definitive criteria under which small fry could get back into the system by themselves with a simplified method that didn't expose them to the risk of draconian penalties.

(IMHO): FATCA is coming to the UK, no doubt about it. No one in the UK Government is objecting. According to Reuters, a UK Parliamentary committee is proposing that the UK start its own FATCA programme. The banks are wringing their hands in glee at the prospect of no with holding problems and a chance to reject American clients, unless the client is willing to pay additional charges to cover the compliance costs (my assumption!). Will the small fry 'accidental (or as some say, unaware) American' be caught out? If so, the assumption could have been that this programme (originally labeled for nonresident Dual citizens and others), might have been the way to ease a degree of upset. This programme does not achieve that result.

For those that have been consistently filing FBAR and US returns, but may have unknowingly omitted information forms relating to (ISA) savings, investments, or pensions, will find filing an amended return will only get you upgraded to high risk in this programme, if you can use this programme at all.

http://uk.reuters.com/article/2012/08/23/uk-britain-tax-disclosure-idUKBRE87M00320120823

Thanks for all the advice and warnings on this complex subject.
My wife and I are a dual citizens, worked in the UK for 6yrs and moved back in 12/2009. Have filed US and UK taxes all along thru a US account and self-assessment in the UK. We own a house in the UK with low rental income and file self-assessment.
1) We have recently received an inheritance into our UK bank which puts us into FBAR range. If we file FBAR, will all previous accounts be reviewed by IRS--since we had >10,000 USD in an account while we worked in the UK, will this make us FBAR non-compliant?
2) Since we returned to the US after 1/1/2009 are we now "high risk", and so any amnesty does not apply?
3) Everyone refers to "qualified US-UK tax advisers"--how do I find a reputable one in the States?

what does this part of the questionaire about pension accounts mean....

7. Do you have a retirement account located in your country of residence?
a. If yes, are earnings from the retirement account non-taxable in the U.S. under current treaty provisions?

How would I know if earnings are non-taxable under a current treaty? I have a UK Sipp and make regular contributions. It will be many years until I receive earnings from it as I am well below retirement age.

As you are a US person for tax purposes a SIPP is doubtless a foreign grantor trust so you would already need to be filing annual forms 3520, TD F 90-22.1 and 8938 to report the SIPP and presumably also filing a form 8833. If you are not filing an 8883 you would be including current income on your annual US tax returns. From the 2012 return one may also be filing forms 8621 if PFICs are held in the SIPP.

According to your other posts you have been delinquent in mandatory annual filings with the IRS and Department of Treasury. Given this fact the potential civil penalties at stake in the circumstances described are in the hundreds of thousands of dollars, I would suggest urgent professional advice in such circumstances.

It is doubtful in my opinion that anyone with missing forms 3520 would be a suitable candidate for this newly announced IRS policy. I would probably recommend a different method approaching the IRS but without adequate facts it is impossible to know for certain how one should best come clean.  A SIPP is certain to add high risk factors.

If you wish, please feel free to send me a private message and we can discuss this in more detail.

what does this part of the questionaire about pension accounts mean....

7. Do you have a retirement account located in your country of residence?
a. If yes, are earnings from the retirement account non-taxable in the U.S. under current treaty provisions?

How would I know if earnings are non-taxable under a current treaty? I have a UK Sipp and make regular contributions. It will be many years until I receive earnings from it as I am well below retirement age.

TT, I believe that all tax experts would support Guya's analysis. However, some offer an alternative approach. They argue that a SIPP is a pension under the terms of the UK/US tax treaty and so you would be able to claim a treaty exemption. Some professionals only think this can be argued if more than 50% of the SIPP is employer funded. Guya's approach will have the greatest up front paper work load, but it might allow you to build up a US tax free basis in the SIPP which will be good if you retire to the US.

There is wording on the IRS website that indicates an exception for pensions, when it comes to claiming a treaty exemption.