On September 6, 2019, the IRS released a new amnesty program directed at former US citizens who renounced their US citizenship but failed to file required US individual income tax returns. These forms include Form 1040, international informational reports (example – FBAR), or the Exit Tax Form 8854.
This program appears to have been designed to assist many “Accidental Americans”—individuals who had US citizenship from an early age but lived outside the US and later renounced their US citizenship as adults.
This new program only applies to former US citizens who relinquished citizenship after March 18, 2010. It does not apply (generally) to green card holders who filed Form I-407 to abandon their lawful permanent resident status.
General Requirements for the Program
- The taxpayer must have no tax return or international informational report filing history as a U.S. citizen or resident.
- The taxpayer’s average annual net income tax for the five years before expatriation does not exceed a certain threshold. In 2018, the threshold was $165,000. The instructions to Form 8854 have a table that shows this threshold by year.
- The taxpayer’s net worth was less than $2,000,000 at the time of expatriation.
- The taxpayer’s aggregate total tax liability was $25,000 or less for the five tax years preceding expatriation and in the year of expatriation.
General Procedures for the Program
- The taxpayer must file five years of tax returns. This filing includes associated “international informational reports (IIRs),” such as the FBAR and Forms 8938, 5471, 3520, 3520-A, etc. The filing must be done prior to the year of expatriation and the expatriation year tax return. This is typically a dual-status tax return that includes IIRs and Form 8854, for a total of six tax returns.
- The tax returns and IIRs must be specially marked in red ink, “Relief for Certain Former Citizens.”
- The taxpayer must submit a copy of the Certificate of Loss of Nationality (CLN) of the United States, Form DS-4083, or copy of court order canceling a naturalized citizen’s certificate of naturalization.
- The taxpayer must submit a copy of a valid passport, birth certificate, or government-issued identification.
- The taxpayer is not required to obtain a US Social Security Number if he or she does not already have one.
If an individual meets these requirements and properly submits the tax returns using this amnesty program, then the IRS will not assess any penalties. The IRS will review all submissions to confirm the eligibility criteria and send a letter to the taxpayer notifying that the submission has been received and is complete. The estimated turnaround time for processing by the IRS is two to three months.
While these procedures do not specifically apply to green card holders, FAQ 24 was recently added on October 22, 2019, and could be used by green card holders who recently filed I-407 to abandon their green card but did not file Form 8854 with their tax return. Under this FAQ, if an individual meets the general requirements (see above), then the individual would do the following:
- Prepare IRS Form 8854 (stand-alone)
- Write in red ink, “FAQ 24,” at the top of the form
- Prepare a statement of reasonable cause explaining all facts and circumstances relating to the late filing of Form 8854
- Sign the statement of reasonable cause under penalties of perjury.
It should be noted that individuals submitting Form 8854 under FAQ 24 will not receive a response from the IRS acknowledging receipt nor a denial letter.
Former US citizens, “Accidental Americans,” and long-term green card holders who have abandoned their green cards under the I-407 should carefully examine the requirements under Internal Revenue Code 877A to determine if they have properly filed all required tax returns, reports, and forms. If there is any uncertainty, then strong consideration should be given to the amnesty program mentioned in this article or to one of the other amnesty programs the IRS has available, such as Streamlined Filing.
Need help? The Wolf Group tax professionals have experience with all of these programs and filings. We can assist you in determining your options and preparing any corrected filings.