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New U.S. Tax Compliance Initiatives

August 20, 2019

New U.S. Tax Compliance Initiatives

Synopsis
2 Minute Read

Canadians who are or were U.S. citizens or residents face two new tax compliance rules from the U.S. Internal Revenue Service.

On July 19, 2019 the U.S. Internal Revenue Service (IRS) announced six new compliance initiatives. Two of these are particularly important to certain Canadians who are, or were, US citizens or residents

Post-OVDP

The IRS had an Offshore Voluntary Disclosure Program (OVDP) for people who had not fully reported their foreign (non-US) income and financial assets. This program was primarily designed for Americans living in the U.S. who knew they were in violation of the law. This program closed on September 28, 2018.

The IRS now looks at participants in the OVDP to ensure they continue to file properly, reporting their foreign income and assets. If the IRS finds a failure to do so, it could impose significant penalties.

The premise for this program is likely the same as with insurance. The most likely person to have a car accident is someone who has already had an accident. Similarly, the IRS thinks the person most likely to fail to report foreign income and assets is someone who already failed to do so.

Expatriation

The second initiative is the IRS will now scrutinize expatriates for compliance. Expatriation is the cessation of immigration status for a U.S. citizen or long-term resident (LTR). An LTR is a person who was a lawful permanent resident (green-card holder) for 8 out of 15 years.

An expatriate has special filing requirements, such as filing an Initial and Annual Expatriation Statement (form 8854). The penalty for failure to file this form is $10,000; the IRS initiative seeks to ensure compliance with these requirements. There are other substantial exposures, such as being a Covered Expatriate.

The IRS has a list of some expatriates; each quarter, people who have renounced citizenship are listed in the Federal Register. Abandonment of a green card is much more difficult to track.

The last major change to the expatriation rules dates back to June 17, 2008, so the IRS will be focusing on people who expatriated after that date.

The IRS expects to contact taxpayers in a number of ways; it is not clear how aggressive it will be.

For more information, contact Kevyn Nightingale, LLM, CPA, CA, CPA (IL), TEP at 416.596.1711 or [email protected]

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