What Are the Relief Procedures for Certain Former Citizens?
Understand the specific IRS procedure allowing certain former citizens to address prior U.S. tax obligations and achieve compliance.
The Internal Revenue Service provides the Relief Procedures for Certain Former Citizens program to help individuals who have relinquished their U.S. citizenship become compliant with their tax obligations. It is designed to resolve past non-compliance issues for those who may have been unaware of their responsibilities. The procedures offer a way to address these obligations without being classified as a “covered expatriate,” which can have significant tax implications under section 877A of the Internal Revenue Code.
Determining Your Eligibility
To use these relief procedures, an individual must meet several specific requirements. A condition is that the person must have relinquished their U.S. citizenship after March 18, 2010.
The failure to file tax returns and pay any associated taxes must be the result of non-willful conduct. Non-willful conduct is defined as actions arising from negligence, inadvertence, a mistake, or a good-faith misunderstanding of the law’s requirements. The IRS created these procedures for those who may not have known they had U.S. tax obligations, often referred to as “Accidental Americans.”
Another condition is that the individual must not have a prior history of filing U.S. income tax returns as a U.S. citizen or resident. This program is for those who were entirely outside the U.S. tax system before their expatriation. If an individual has previously filed a Form 1040, they would not qualify.
Financial status at the time of expatriation is also a determining factor. The individual’s net worth must have been less than $2 million on the date they relinquished citizenship. The second financial test involves the aggregate tax liability for the five tax years before expatriation plus the year of expatriation itself, which must not exceed $25,000. This is the total tax owed before any payments or credits. An individual is also not required to have a Social Security Number (SSN) to use these relief procedures.
Information and Forms to Prepare
Successfully using the relief procedures requires preparing a specific set of documents. The submission package must contain completed U.S. tax returns for a total of six years along with Form 8854, the Initial and Annual Expatriation Statement.
The tax return component covers the five tax years preceding the year of expatriation, as well as the year the individual relinquished citizenship. For the year of expatriation, a dual-status return is required, which includes both Form 1040 and Form 1040-NR. These returns must report the individual’s worldwide income for the periods of U.S. citizenship and include all required information returns, such as Form 5471 or Form 3520.
Form 8854 is the official declaration of expatriation for tax purposes. To complete it correctly, the individual must provide personal details, the date of expatriation, and a detailed balance sheet. This balance sheet must list all worldwide assets and liabilities at their fair market value as of the expatriation date.
Part IV, Section A of Form 8854 contains the certification of compliance for these relief procedures. By completing this section, the individual attests under penalties of perjury that they have complied with all of their U.S. federal tax obligations for the five tax years preceding their expatriation. This certification is the mechanism that allows the IRS to grant relief from penalties and interest.
How to Submit Your Relief Request
Once all necessary forms and tax returns are completed, they must be assembled into a single package. This package should be mailed to the address listed in the instructions for the tax forms being filed. It is advisable to use a mailing service that provides tracking to confirm delivery, as the IRS does not send an acknowledgment of receipt.
After the submission is mailed, the IRS will review the package to ensure it is complete and the individual meets all eligibility criteria. If accepted, the IRS will process the tax returns and the individual will not be assessed any penalties or interest. If the returns show a tax liability, the individual is relieved from paying those back taxes, provided the aggregate amount is under the $25,000 threshold. Successful processing means the individual is considered compliant with their U.S. tax obligations up to their expatriation date.