Regardless of where a US citizen resides, they are subject to US income taxation on their worldwide income and may also be required to disclose non-US financial accounts annually. Failure to meet these obligations may result in serious legal consequences.
Avoid accidental consequences
Were you born in the US but left at a young age? Are you holding the US nationality but have never really lived in the US? You may be labeled an Accidental American; a person who is considered a US national, but who does not feel connected to the US either socially or patriotically. Why is this relevant? Accidental Americans living outside of the US are often unaware of the US tax and financial reporting requirements associated with their US nationality until they encounter problems when opening a non-US bank account with their status as a US citizen.
Whether they accept it or not, US citizens are subject to US income taxation on their worldwide income annually under current US laws, regardless of where they reside. In addition, they may also be required to disclose their non-US financial and/or bank accounts even if they do not have any US tax obligations. Failure to meet any of the income tax and reporting requirements could result in substantial civil penalties and criminal prosecutions.
Luckily, the US federal tax authority has introduced various tax amnesty programs over the past two decades to help delinquent filers regularize their tax status. The Streamlined Foreign Offshore Procedures (“Streamlined”) introduced in 2012 is probably the most popular program used by US citizens abroad to get back on track with their US tax compliance in recent years. One benefit of this program is the reduction of penalties for late submissions and non-compliance penalties for all delinquent years if an individual qualifies for the “Streamlined” filing procedures.
Currently, to qualify for the “Streamlined” program, a US person must meet three main conditions.
- The individual may not be residing in the US;
- the individual may not be under audit or examination by the US tax authority;
- the individual may not have acted deliberately (non-willful).
Then, they must submit the information below all at once to a special unit dedicated to this program.
- US federal tax return for the last three years for which the filing due date was missed;
- FBARs for the last six years for which the FBAR filing due date was missed;
- Complete and sign a non-willful certification statement, Form 14653;
- A payment for the outstanding taxes owed for the three years, including arrears interests.
“Streamlined” is a great program allowing non-willful individuals to get back into compliance with reduced penalties. As this program has been around for more than ten years now, we do not know whether it will stay around for much longer, but it will certainly not last forever. Therefore, if you are considering the “Streamlined” procedures to regularize your US tax compliance status, you may want to consider using this program sooner rather than later to avoid missing out on a cost-effective method to be US tax compliant.
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