The citizens and residents of the United States (“the US”) are generally subject to worldwide income tax in the US. Unfortunately, some US taxpayers may be unaware of or forget their tax compliance obligations, in particular the reporting of their ‘foreign’ income, assets, bank accounts, and investments after leaving the country.
A Possible Way to Rectify the Errors in Prior Years’ Tax Reporting in the United States
In order to encourage and assist the US taxpayers to voluntarily disclose their unreported income and assets and pay the tax due, the Inland Revenue Service (“IRS”) has introduced the Streamlined Filing Compliance Procedures (“the Streamlined Procedures”) for the US individual taxpayers since 2012. The Streamlined Procedures are available for the US taxpayers residing in the US and outside of the US.
To be eligible to the Streamlined Procedures, the applicants are required to certify that the non-reporting of their income/assets is due to non-willful conduct, such as negligence, inadvertence, mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.
Required Submissions and Documentation
Under the Streamlined Procedures, the US taxpayers are required to submit all their missing US tax returns, including the Reports of Foreign Bank and Financial Accounts (“FBARs”), if applicable, and make the tax payments together with interests to the IRS. In addition, it is necessary for the taxpayers to make a statement/certification to the IRS, which generally includes but is not limited to the following:
- their relevant background, such as their education and work history, if applicable;
- their tax position in respect of the non-reported income/assets, if any, in the relevant foreign tax jurisdictions, if applicable;
- the reason(s) for non-reporting of their income/assets to the IRS in the past;
- certifying that the failure to report the income/pay the tax/submit the required tax returns was due to non-willful conduct.
It is worth noting that it is possible that taxpayers will not be subject to penalties for their past infringement of the tax compliance obligations under the Streamlined Procedures. In addition, taxpayers are generally required to submit three years of original/amended tax returns and six years of FBARs only, instead of all the prior years of which the tax filing is missed.
Recommended Course of Action on Tax Filing Compliance
In order to avoid penal and prosecution actions taken by the IRS, it is suggested that US taxpayers rectify any errors regarding the past years’ tax reporting as early as possible, ideally before the errors are found by the IRS.
The tax professionals at HKWJ Tax Law & Partners Limited are able to provide you with the relevant assistance. Please feel free to contact us for more information.
