The IRS has created its own storm of controversy by going after US Citizens worldwide to collect their taxes. But from the nearly one million American citizens who live and work in Canada, the IRS received a stern message: clarify the regulations for tax compliance. Initially, many law-abiding citizens living abroad who failed to file US tax returns or declare financial holdings were simply unaware that they needed to do so. But after receiving intimidating IRS letters threatening severe penalties, many frustrated expats proceeded to flood the Canadian Embassy with calls demanding clarification of the tax responsibilities of US Citizens or Dual Citizens living abroad and the penalties levied on unpaid taxes and undeclared bank accounts.
An article in the Globe and Mail published December 2, reported on an Ottawa interview with US Ambassador to Canada, David Jacobsen who tried to ease concerns raised by taxpayers including advocate groups such as American Citizens Abroad (ACA) who believe information to be lacking and punitive penalties too severe. Jacobsen explained that because of the outcry, the IRS heard their message “loud and clear” and eased up on penalties (for those who qualified). Not long after the Ottawa interview, the IRS issued its newest guidelines Information for U.S. Citizens or Dual Citizens Resigning Outside the U.S. that attempts to simplify the three main points for citizens to remember:
- If a U.S. citizen files tax returns late and owes no taxes, there are no penalties for failure to file.
- U.S. citizens who were unaware of the bank account reporting requirement can file previous reports now, along with a statement explaining why they’re late. No penalty will be imposed if the IRS determines that there is reasonable cause for the delay.
- Individuals who took part in the 2009 Offshore Voluntary Disclosure Program (OVDP) or the 2011 Offshore Voluntary Disclosure Initiative can reapply and get back penalties already paid.
All U.S. citizens living abroad are obliged to file a Federal Tax Return no matter where they earned their living and even if they owe no taxes. These same citizens are also required to provide the US government with information pertaining to financial holdings such as bank accounts, retirement savings and all other investments held in their name. Failing to report this information can have serious consequences in the form of huge penalties or civil action brought against you. For example, Foreign Bank and Financial Accounts Report (FBAR) penalties can exceed 100% of the value of the asset, plus tax penalties and interest!
Beginning in 2014, Canadian financial institutions will have to report on accounts held by US citizens. Not only do the institutions believe these regulations could violate Canadian privacy laws but that they will get stuck with the huge costs associated with tracking all their U.S. account holders. One thing is for sure, the IRS is not afraid to go after the back taxes it is due, no wherever in the world that might be. The rest of the world is beginning to see that this determination has few boundaries.
If you are in the situation of unreported assets and owe back taxes on your foreign accounts, now is the time to be proactive about disclosing your foreign funds. Due to the severity of the financial penalties and criminal implications, it is not in your best interest to wait for the IRS to approach you. Even though the amnesty deadline has passed, you are advised to retain specialized tax representation to help you immediately. You will need a tax attorney or tax resolution specialist expert in FBAR regulations to provide professional tax help representation with your best interests in mind to get you back on track with the IRS.
More Tax Help, IRS News and Tax Relief Tips:
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- Back Tax Help-How Long to Keep IRS Records
- IRS Reminds Taxpayers of $1 Billion in Unclaimed Refunds
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