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US Delinquent filers

There are any number of reasons that a US person may fail to file a US tax return and so be considered delinquent. It may be deliberate, an accidental oversight, or that they understood it was not necessary while overseas, or surprisingly frequently that the individual never knew that they were a US citizen and so subject to US tax filing rules.

In response to the above in recent years the IRS has adopted an Offshore Voluntary Disclosure Program (OVDP) to encourage taxpayers to bring their tax affairs up to date in cases where failure to file was as a result of wilful or negligent actions. Streamlined procedures were first introduced by the Internal Revenue Service (“IRS”) on 1 September 2012 to allow eligible taxpayers to file amended or delinquent returns with further reduced or no penalties, provided that the failure to file was not due to wilful actions on the part of the taxpayer.

On 18 June 2014 the IRS announced an extension to both the main and streamlined programs. These changes considerably expand the number of individuals who will potentially be eligible to participate in the streamlined program.

The streamlined filing compliance procedures are aimed at individuals who are late or delinquent in;

  1. reporting foreign financial assets;
  2. paying all of the tax due in relation to such assets; and
  3. filing original or amended US income tax returns.

Taxpayers participating in the streamlined program will need to sign a statement explaining the reasons for non-compliance and why it was non-willful (inaccurate statements potentially be punishable under penalties of perjury).

To benefit taxpayers must file amended or delinquent returns for each of the three most recent tax years for which the due date has passed, together with all information returns, and the Report of Foreign Bank and Financial Accounts (FBARs) for the six most recent tax years for which the due date has passed must be filed.

For returns filed under the program regular late payment and late filing penalties will still apply but individuals will not be subject to the potentially significant penalties in respect of information reporting forms and FBARs, and will also not be subject to any criminal sanctions.

The main OVDP is squarely aimed at those taxpayers where the previous failure to file/correctly report was deliberate. However, the benefits include the avoidance of substantial civil penalties and it generally eliminates the risk of criminal prosecution for all reporting covered by the disclosure. The main program may therefore still be suitable for some taxpayers e.g. where it is not clear that they will qualify for the streamlined program.

As a result of the new rules we expect many more taxpayers to be able to bring their tax affairs into compliance with limited and in some cases zero penalty costs.

The US/UK HNW team are very familiar with the application of these rules and are well placed to assist taxpayers in getting back into the program

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