Shulman announced the IRS will provide a new option to help some U.S. citizens and others residing abroad who haven’t been filing tax returns and provide them a chance to catch up with their tax filing obligations if they owe little or no back taxes. The newprocedure will go into effect on Sept. 1, 2012.
To qualify, individuals must submit three years of back taxes, six years of bank reporting forms – so-called Report of Foreign Bank and Financial Accounts, or FBARs – and a signed letter explaining why they haven’t filed.
The IRS defines low risk as people who have “simple” returns and owe less than $1,500 a year in taxes, based on the past three tax years. To owe less than $1,500 in US Tax, assuming a Single Filing Status and 1 Personal Exemption, your combined income would have to be less than $22,650.
|Estimated Tax Analysis|
|Qualified plan contributions||-||$0|
|Adjusted gross income||=||$22,650|
|Tax liability before credits||$1,500|
|Child tax credits||-||$0|
|Estimated tax liability||=||$1,500|
This really only helps americans who retire in Canada and Canadians who pay Canadian Taxes on their World Wide Income and who use a US "Foreign Tax Credit" to reduce their US Tax to $1500.
Example: A US Citizen can earn interest of between 1% – 3%, on principle of between $755,000 – $2,265,000 and still qualify for this US amnesty (see chart below); even where this income may not have be subject to Canadian taxation.
|Rate of Interest||Principle||Income|
The United States is unique among developed countries in requiring all citizens, including dual Canadian-Americans, to file taxes with the IRS every year, regardless of where they live.
There are roughly a million Americans in Canada – many with little or no ties to the United States. An increasingly onerous U.S. crackdown on Americans who hide money offshore is forcing many of them out of the shadows.
Canadian Tax experts said the measures go a long way to resolving an issue that has caused a wave of angst among Americans in Canada and a flood of business for lawyers and accountants.
It’s a good start and it’s particularly good for about 90 per cent of Americans in Canada, most of whom will fall into the low risk category.
But individuals who don’t owe much tax, but have closely held partnerships, investment companies or trusts aren’t likely to benefit.
The IRS initially promised details of the amnesty late last year. But U.S. officials have struggled internally over whether people who haven’t filed for years deserve any special leniency.
The IRS also announced special “streamlined” procedures for reporting certain foreign retirement accountant, mentioning specifically Canadian Registered Retirement Savings Accounts. Individuals will be allowed to retroactively elect to defer income in those accounts.
Without the amnesty, Americans who haven’t filed their taxes and other IRS forms face penalties totalling tens of thousands of dollars per year and risk criminal prosecution. See IR-2012-64 for more details.
Read more at: Tax Times blog