The Large Business and International Division (LB&I) of the IRS recently announced the addition of six compliance campaigns. Throughout the years, compliance campaigns have come and gone, but the new campaigns are targeting Americans working overseas specifically. The IRS hasn’t given explicit information on how it expects to carry out these campaigns, but expats still need to know how the upcoming compliance endeavors may affect them. Specifically, the expatriation endeavor will have consequences for a particular subsection of Americans working overseas who expatriated recently.
How Will the Expatriation Initiative Affect Americans Working Overseas?
The expatriation compliance initiative involves US citizens and long-term residents who expatriated after June 17, 2008, and are tax noncompliant. Folks in those categories can anticipate contact by the IRS in the form of soft letters and examinations.
The new IRC 877A rules came into effect on June 17, 2008. The expatriation tax is different for those who expatriated since June 17, 2008, those who expatriated between June 3, 2004, and June 17, 2008, and those who expatriated before June 3, 2004. The timing of the rule change can feel unwieldy and confusing, but what Americans working overseas need to remember is this: no matter the date, expats who have not filed Form 8854 (the Initial and Annual Expatriation Statement) may receive up to a $10,000 penalty.
Keep in mind that covered expats may be subject to the exit tax, as well, and this is a tricky area. Covered expats include those that have more than two million dollars in net worth on the date of expatriation, those whose US tax liability exceeds certain thresholds during the five years before expatriation, and those who cannot certify compliance with all US tax obligations for the five years before expatriation. If you expatriated and failed to pay the exit tax, the IRS may very well be contacting you due to this new campaign.
This new compliance campaign will primarily affect Americans who previously renounced their citizenship. Those who renounced at the embassy but did not meet their US tax requirements before or after are most at risk, but this also affects late filers who plan to expatriate in the future.
If you fit into the descriptions listed above, getting caught up on your expat taxes is more important than ever. Those who have seriously delinquent tax debt (a threshold easy to cross as an expat) may have their passports revoked.
What Are the Other Five New Initiatives?
The other IRS compliance campaigns are:
- S Corporations Built in Gains Tax – This campaign focuses on expat entrepreneurs. The built in gains tax (BIG) applies to C Corporations that have transitioned to S Corporations with net unrealized built in gains.
- Post OVDP Compliance – This compliance campaign will focus on tax noncompliance related to foreign income and asset reporting requirements.
- High Income Non-filer – This campaign seeks those with high income who aren’t tax compliant.
- US Territories – Erroneous Refundable Credits – This campaign seeks those residing in US territories and improperly using tax credits, and it will find them through outreach and traditional examinations.
- Section 457A Deferred Compensation Attributable to Services Performed before January 1, 2009 – This could impact Americans working overseas who received deferred compensation and are noncompliant.
Don’t Miss This Opportunity to Become Tax Compliant!
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