Relief procedures for certain former US citizens

The relief procedures apply to individuals with a net worth below USD 2 million and an aggregate tax liability of USD 25,000 or less for the year of expatriation and the five prior years. The failure to file returns and pay the required taxes must have been non-willful.

Individuals who qualify for and elect to apply these relief procedures will not be taxed as “covered expatriates” under the US exit tax regime. The relief procedures also allow qualifying individuals to expatriate without entering into the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures, which permit higher-net-worth individuals to remedy tax noncompliance preceding expatriation, but require the payment of several years of back taxes and penalties.

Background

US citizens born in the United States to foreign parents or outside the United States to a US citizen parent may be unaware of their status as a US citizen and the consequences of such status, specifically that they may have US income tax return filing obligations. Often, individuals become aware of their US citizen status because the Foreign Account Tax Compliance Act (FATCA) which requires foreign financial institutions to report certain information about their US citizen customers’ accounts. Some individuals seek to eliminate their compliance obligations and US tax burdens by renouncing their US citizenship.

Individuals who renounce their US citizenship may be subject to special expatriation taxes under Sec. 877A; their heirs also could be subject to tax under Sec. 2801 if they receive gifts or estate transfers from covered expatriates. A covered expatriate is an expatriate who:

• Has an average net income tax for the five years preceding expatriation of at least USD 124,000 (indexed for inflation; USD 168,000 in 2019);
• Has a net worth of USD 2 million or more as of the date before expatriation; or
• Cannot certify on Form 8854, Initial and Annual Expatriation Statement, that he or she has complied with all US tax obligations for the previous five years.

Relief Procedures

The relief procedures and FAQs provide an alternative method for certain US citizens expatriating after 18 March 2010, to satisfy their US tax obligations without having to remit any unpaid taxes or penalties, but only if the failure to file required tax returns (including income tax, gift tax, and information returns) and pay any taxes was non-willful. Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake, or that results from a good-faith misunderstanding of the requirements of the law.

To qualify for the relief procedures, an individual must:

• Have no US income tax filing history as a US citizen;
• Not exceed the threshold in the average-income-tax-liability test;
• Have a net worth of less than USD 2 million;
• Have a total tax liability of USD 25,000 or less for the tax year of expatriation and the five prior years.

The relief procedures do not apply to US lawful permanent residents (i.e., green-card holders) who cease to be treated as lawful permanent residents and may be subject to the exit tax under Sec. 877A.

The IRS will review submissions filed under these procedures to confirm eligibility and will notify taxpayers when their submission is determined to be complete. The relief procedures do not include a termination date, but the IRS indicates that an announcement will be made before they are terminated.

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