American Tax Consulting specialises in assisting individuals bring their US taxes up to date including utilising any penalty free schemes currently operating by IRS.
There are currently three schemes in place:
- Streamlined Scheme;
- Relief for Former Citizens; and
- Delinquent Filer Scheme
Details of each of the schemes are provided below. Each of these routes have their own complications so do please reach out to us and we would be happy to discuss your own specific circumstances.
Streamlined Scheme
The streamlined scheme allows an individual to bring themselves up to date by filing the last three years of late filed returns (or amended tax returns) and six years of Foreign Bank Account Reports (FBARS) form Fin Cen 114.
In order to qualify for this scheme, you need to be able to show that you are non-wilful. Unfortunately, there is no clear definition of what this entails but generally we take it to mean: someone who was up to date with their US taxes, moved abroad and stopped filing but are up to date in their new local jurisdiction taxes.
It can also be used for people who could be considered ‘Accidental Americans’ which are generally people who were not aware they were American and have never filed a US tax return.
The benefits of this scheme are the reduced filing requirements and consequently reduced compliance costs (except for FBAR reporting which is still six years). It can also reduce all penalties if you qualify for the Foreign Offshore Scheme.
There is a concern this scheme could close shortly and therefore anyone looking to utilise this should look to file as soon as possible.
Relief for certain former citizens
This new scheme launched in 2019 is specifically targeted at ‘Accidental Americans’ as it requires that you have never filed a US tax return previously.
In order to qualify you need to expatriate and give up your US citizenship and therefore it is not something to be taken lightly as expatriation can result in tax consequences itself. This scheme also does not reduce the number of years you need to file with a full six years of compliance required.
The advantages include: that all penalties are waved; no Social Security Number (SSN) is required if you have never received one; and any tax less than US $25,000 plus interest is waved (albeit if above this you would not qualify for the scheme).
Unfortunately, this scheme comes with a number of complex requirements most of which you can’t confirm you have satisfied until all of the outstanding returns are drafted.
Delinquent Filer Scheme
If you do not qualify for either of the above schemes, then the Delinquent Flier Scheme provides another option. You still need to file six years of returns and therefore while the scheme does not reduce the compliance costs it can mitigate the penalties.
To do this you need to attach a reasonable cause statement explaining the reasons you have not filed and why you believe the penalties should be mitigated. The disadvantage of this scheme is it does not guarantee all years of penalties will be removed and therefore need to be considered carefully.
Quiet Disclosure
If you do not follow one of the schemes outlined above, you would need to file the last six years of late US tax returns to bring you up to date. We do not recommend this option as it is considered a “quiet disclosure” by the IRS and likely to result in higher levels of penalties and interest.
As you can see there are various complexities with the different schemes and we would be happy to discuss which is most appropriate for your specific circumstances.