Posted on April 10, 2013
Written by Avner Polatsek | @AvnerPolatsek
If you’re a US or dual citizen living in Canada, do you know that you should still be filing US taxes? You also need to disclose your reports of any foreign bank and financial accounts (FBARs). Before you panic about whether or not you owe penalties or are subject to other consequences, there is good news.
As of September 1, 2012, you can take advantage of Streamlined Filing Compliance Procedures. This new process basically means that the IRS is waiving certain fees and penalties for US citizens living outside the US who weren’t aware that they were supposed to file US taxes and who want to do so now.
Before we go any further, we should address eligibility. You might be eligible for the Streamlined Filing Compliance Procedure if you have lived outside of the US since 2009 and have not filed US taxes in that period. You will also need to fall under the “Low Compliance Risk” category. People who are considered a low compliance risk would include those who have simple returns and who owe little or no US tax (under $1,500 per year).
If you are fixing a past tax return, otherwise known as an amended return, you are not eligible because you are not considered to be a non-filer.
Why the program began
The IRS started this program because they found that many US citizens living in other countries were becoming aware that they should be filing taxes and became swarmed with people filing past tax returns. As a way to speed up the process, they introduced a reward system for people coming clean with simple returns.
Rewards for settling up
Eligible US taxpayers using the Streamlined Procedure can look forward to faster return reviews and waived late penalties. Considering that penalties can run up to 25 percent of owed taxes, that’s a pretty good reward. On top of that, unintentionally neglecting to disclose your FBAR could cost you $10,000!
Talk to your accountant and gather the following items to submit:
While the most basic purpose for the Streamlined Filing Compliance Procedure is to offer incentives to US non-residents filing US taxes for the first time while living abroad, there are also opportunities to extend past deadlines and defer income from retirement savings plans. Make sure to check with your accountant about the guidelines for this part of the procedure.