U.S. citizens living abroad who have neglected to file tax returns now have the chance to catch up with a new Internal Revenue Service plan due to go into effect Sept. 1.
The plan benefits taxpayers who are considered low compliance, meaning they owe $1,500 or less in taxes for any of the years they are filing.
The plan will allow them to become current without facing penalties.
“From what I understand, as long as the tax due per year is under $1,500, they are not going to have an issue with the IRS,” said James Brohl, a San José accountant and business consultant.
Those who file using this procedure will have to file three years worth of delinquent tax returns as well as six years worth of delinquent Reports of Foreign Bank and Financial Accounts, known as FBARs, according to the IRS..
Taxpayers who file and are found to be of higher
compliance, meaning they owe more, will face a review and a potential audit.
This procedure also has a section for retirees. Those with foreign retirement plans will be able to file for income deferral even if the election is not made on what is considered a timely basis, said the IRS.
According to Brohl, the plan is not entirely new, but a continued effort of the IRS’s Offshore Voluntary Disclosure Program that began in 2008.
The IRS reported Tuesday that it has had 33,000 voluntary disclosures from its 2009 and 2011 program, and has collected $5 billion in back taxes, interest and penalties. This program is the department’s way of stopping offshore tax evasion and ensuring tax compliance.
The accountant’s recommendation for now is for taxpayers to wait until the plans are effective to start preparing.
“This is something I haven’t even started discussing with my clients yet,” said Brohl. “It’s more important to wait until September to know exactly what they are proposing.”