Much has been written and spoken about the Internal Revenue Service’s new “Relief Procedures for Certain Former Citizens” regime since it was unveiled earlier this month – apparently to enable mostly “accidental Americans” who have relinquished their U.S. citizenship, or are hoping to, the chance to easily and cheaply enter into U.S. tax compliance.
The general consensus seems to be that only a relatively small and select number of individuals will be eligible to participate in the new program, and that the participants will also tend not to be wealthy, since they must have net assets of less than US$2 million if they are to be accepted.
The fact that those participating in the program may not need to get a Social Security Number, if they don’t already have one, has been highlighted by some observers as a potential attraction for many would-be program participants.
On Thursday, Anthony Parent of Wallingford, Connecticut-based Parent & Parent LLP, also known as IRS Medic; John Richardson of Toronto-based Citizenship Solutions; and Keith Redmond, of Paris-based American Overseas Global Advocate, an American expat advocacy group, discussed in detail the IRS’s new Relief Procedures program, how it compares with previous IRS programs, and who is likely to benefit most from it.
Among the many insights that emerged from their hour-and-12-minute conversation, which may be listened to and downloaded from YouTube by clicking here, is that the new IRS “Relief Procedures” regime is thought to have been conceived by the U.S. Treasury and State Department in respose to foreign pressure – from the European Union generally, and France in particular – to address the problems being faced by citizens of other countries who are struggling with their legacy American citizenship ties.
Specifically the EU and French authorities have been expressing concern, as reported, about a pending end to an existing grace period during which non-U.S. banks and financial institutions have been able to report to the U.S. on their American citizen account-holders, as they’re required to do under the 2010 Foreign Account Tax Compliance Act, without having to give the account-holders’ Social Security Numbers. Many accidental Americans don’t have SSNs, and are reluctant to get one.
“This program is a direct result – a direct result – of the hard work of Fabien Lehagre, and his Accidental Americans Association,” Redmond said, referring to the U.S.-born accidental American who founded l’Association des Américains Accidentels a few years ago.
Lehagre has kept up the pressure on France’s banks and France’s and Europe’s politicians – filing a formal discrimination complaint against France’s banks in March, for example, and organizing a lively and well-attended demonstration on Paris’s Île aux Cygnes (Isle of Swans) last November (pictured left), when President Trump was in town.
How The Relief Procedures Compare
Parent, Richardson and Redmond agree that the IRS’s new Relief Procedures offer certain advantages that no previous or existing programs aimed at helping Americans to come into compliance with their tax obligations and/or renounce their citizenships do, or have done.
Foremost among these advantages is that for those who qualify to participate, it will be far and away the cheapest option thus far. This is because those participating in the scheme will not be obliged to pay any back U.S. taxes they may be found to owe if their total tax liability doesn’t exceed a total of US$25,000 for the six years in question. (These are the five years preceding their year of expatriation, plus the year of expatriation itself.)
That said, “the Streamlined [Foreign Offshore Procedures, a widely-used IRS program designed to enable taxpayers to come into compliance] is pretty good,” Parent noted, adding that it was unlike its predecessor, the Offshore Voluntary Disclosure program, which he called “a complete disaster” for its harsh approach.
Parent and Redmond pointed out that the IRS’s limited ability to enforce its rules, particularly overseas, meant that it has sought to rely on the publicity surrounding its harsh treatment of those found to have “willfully” sought to avoid their tax obligations, through non-U.S. financial accounts and the failure to file forms, to scare others into coming forward and paying their taxes.
This, they added, is unlikely to be much comfort to those who were harshly treated when they came forward early on to regularize their tax affairs, and who now will be learning of the lenience on offer under the new Relief Procedures.
Richardson said he was contacted recently by such a person.
“This person went into the Offshore Voluntary Disclosure Initiaive in 2011, [a time] when the IRS was saying, ‘This is your last, best chance to come into compliance…Those who come into compliance now will pay less,’ Richardson said.
“So she did that. And then [the Streamlined procedures] came along, of course, and people paid less… And then, in 2014, a better Streamlined program came along, and people paid even less…
“And now they have this, where people will pay less [still], and might even pay nothing.
“The reason she sent me this message was because she paid all this money through the OVDI, and she was hit up [recently] by the Transition Tax [a controversial and retroactive repatriation tax introduced into law by President Trump’s Tax Cuts and Jobs Act] in a fairly significant way.
“What she said to me was that if she had done nothing before, and taken advantage of this new procedure, she and her husband would have paid no U.S. tax, and [been able to] simply renounce.
“She’s extremely angry because she feels betrayed, having tried to do the right thing by coming into compliance early – and look at where that got her.
“Other people who did delay [coming into compliance] did a lot better.”
Advice
Asked what his advice to accidental Americans who are stressing out over their U.S. tax and citizenship issues would be, Redmond said: “I would say first, just breathe.
“Don’t do anything in haste. Think it through. And get all the information you possibly can, not just from within the U.S. tax compliance industry, but outside of it as well.
“Don’t make any decisions out of haste, or fear, because you will only hurt yourself in the long run….it doesn’t have to be done yesterday.”
Redmond also urged anyone who is struggling “to talk – to me, to Anthony Parent, to John Richardson.”
Parent agreed, and urged particularly worried accidentals and expats to remember how limited the IRS’s resources are.
All three agreed that for those who qualify for the IRS’s new Relief Procedures, it’s at least a start in the right direction, but could be better.
“I think each case will have to be weighed on its own merits,” Redmond said, before going on to say that he thought the program could be a good option for those accidental Americans who were looking to renounce, but possibly not for an accidental “who has already renounced…[and] who has [already] obtained a CLN [Certificate of Loss of Nationality of the United States], without entering the U.S. tax system”, as they would now “all of a sudden retroactively enter [it]”.
Parent agreed that “retroactively, I’m not entirely sure” the program would be a good idea for many accidentals, but “prospectively, I could see somebody wanting to do it,” though he noted that it is “expensive” for a program evidently intended “for people who just don’t make a lot of money.”
“My view on it is that if you really wanted to help people who didn’t have all the money in the world, I think you would do it differently.
“But is it better than nothing? Yeah.”
Richardson said he sees the program as being of benefit to three specific groups: “Those who can’t sleep at night because they renounced without filing taxes; those who would be concerned about being a ‘covered expatriate’ from the point of view of bequests they [would one day make] to their U.S. citizen children, and those who want to clean up their tax situation without having to get a Social Security Number.”
Those who expatriated after June 17, 2008 and who failed to certify before they did so that they had complied with their U.S. tax obligations for the five years preceding their expatriation would be considered “covered expatriates,” an IRS distinction that involves lingering potential tax obligations.
This report was taken from a 72-minute YouTube podcast, entitled Accidental Americans: Looks Like Being Born in the USA May Not Be a Good Thing.
1 comment on “Three Experts Scrutinize IRS’s New Relief Procedures For Certain Former Citizens”
Thoughts:
This program isn’t really about anyone who has renounced already without coming into compliance. What’s the incentive, other than a nice letter one can frame and display above the fireplace? I suppose it avoids some mysterious future compliance campaign that will in all likelihood be completely toothless. I suppose the program is back-dated to 2010 out of the need to appear “fair” in some sort of FATCA context.
Instead, this is a political gesture to show that the US wants to make life easier for Accidentals. Whether any future renunciants decide to do this or not isn’t really the point. On some level, why would they? It’s a lot of meaningless paperwork, since anyone without US financial ties can renounce without compliance and suffer no consequences. (In fact the program’s very existence might publicize the fact that it’s possible to renounce without compliance, and make that option more popular.)
It is a bitter pill for someone who renounced and paid a sub-$25k tax bill – like those poor sweet law-abiding Dutch people on the TV report a few years ago – but I expect their numbers are extremely small. They can thank the “tax professionals” who told them they had no choice but to comply. There might also be people currently filing and waiting to reach 5 years before renouncing – if they have been badly advised, since they can of course backfile 5 years at once – who have missed out on this.
So maybe it’s a bit more subtle than that. Maybe what the IRS is really saying here is: “If you renounce and owe us less than 25,000 dollars, please just walk away. We don’t want to process your returns. We lose money every time one of you sends us a giant stack of papers adding up to zero.”
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