Effective, July 1, 2014, US persons, that is citizens and green card holders, who live outside the US, can now avoid the onerous $10,000 penalty and the risk of criminal prosecution for breaching the reporting requirements in relation to foreign assets, by doing the following:
- File FBAR(Foreign Bank Account Report) forms for the last six years
- File tax returns or amended tax returns for the last three years
- Pay any outstanding taxes due
- Submit a signed affidavit testifying that the failure to file in the past was not a willful act
This more liberal approach by the IRS is reflective of the fact that many stakeholder groups such as IRS field agents and lobby group American Citizens Abroad have indicated that many persons who wanted to become clients were still hesitant because of the previously high cost of the penalties charged for becoming compliant.
This new program is particularly beneficial to US citizens and green card holders residing in Jamaica since very few Jamaicans end up owing taxes in the US once the benefits of the Jamaica-USA double taxation treaty are applied. In many cases, this will only involve preparing the required forms and paperwork.
The move is not purely altruistic on the part of the IRS because they are well aware of the hundreds of thousands of the estimated seven million US persons abroad, who will capitalize on the opportunity to become compliant and in the process become contributors to the US treasury, now and in the future. Non-compliant persons, who live in the US, won’t get off as easily since they will be required to pay 5% of their foreign financial assets as a penalty in order to access the benefits of this new program.
The IRS has made it clear that non-compliant taxpayers who are discovered through bank investigations will automatically be subject to a penalty of up to 50% of their foreign financial assets as a penalty for their non-compliance in addition to the normal tax filing penalties.
This new program is genuinely beneficial to recalcitrant taxpayers and has generated many positive responses in the few days since it has been announced.
Non-compliant taxpayers are well advised to seek the assistance of a qualified accountant experienced in these matters to capitalize on the benefits of this program.