Residency Rules for Streamlined IRS Tax Amnesty Programs

The United States is one of two countries in the world that taxes based on citizenship instead of residency (the other being Eritrea). All citizens and residents of the United States are required to report and pay taxes on any income they make, regardless of whether the income was made while living in the United States or not.

Paying taxes to the United States government while living abroad can be a difficult and confusing process, which is why the IRS has made a tax amnesty program available to citizens and residents earning income in other countries. The program allows citizens and residents to pay unpaid taxes from prior years with minimal penalties.

If you are a United States citizen or resident who has lived or is living abroad and would like to pay previously unpaid taxes, continue reading to learn more about the residency requirements for eligibility for the streamlined IRS tax amnesty program, how to go through the procedure, and how U.S. tax planning accountant Ted Kleinman can assist you in making sense of it all.

Understanding Basic Residency Rules for the Streamlined IRS Tax Amnesty Program

Individuals seeking to make use of the Streamlined Foreign Offshore Procedures, the IRS’s streamlined tax amnesty program, should first understand the general eligibility criteria. Anyone seeking to use it must, firstly, meet the non-residency requirements, and secondly must have failed to report the income made in a country that is not the U.S. This eligibility is also met if an individual has failed to file the proper Foreign Bank and Financial Accounts (FBAR) paperwork. More information can be found within Publication 54.

There are two categories of residency rules pertaining to gaining eligibility for the IRS streamlined tax amnesty program. The first is the non-residency requirement for individuals who are citizens or lawful permanent residents (green card holders) of the United States. They meet the requirement if the individual has not had an abode in the U.S. in any of the three most recent years and if the individual was physically not in the United States for a minimum of 330 full days. A person is not eligible if they have a temporary presence in the United States or if they maintain an abode in the United States. An abode is defined as a place where an individual maintains their family, economic, and personal ties.

The other residency requirement for individuals seeking to participate in the IRS streamlined tax amnesty program pertains to individuals who are not citizens or lawful permanent residents of the United States. An individual meets the non-residency requirement if they have not met the substantial presence test of IRC section 7701 (b)(3) in any one or more of the past three years that have had a U.S. tax return date pass. See Publication 519 for more information about meeting this requirement.

How To Participate in the Streamlined Foreign Offshore Procedures

If an individual meets the non-residency requirements, then they should follow the procedure for using the Streamlined Foreign Offshore Procedures. This entails the following:

  • Filing delinquent or amended tax returns along with all required information returns (Forms 3520, 5471, and 8938) for each of the three most recent years for which a U.S. tax return due date has passed; and
  • Filing delinquent FBARs for each of the three most recent years for which the due date for the FBAR has passed. The full amount of tax due and interest connected to these filings must be remitted along with the amended or delinquent returns..

An individual who is eligible to use the Streamlined Foreign Offshore Procedures (and who follows all filing instructions) will be exempt from penalties including failure-to-file, failure-to-pay, accuracy-related penalties, and FBAR penalties. This applies even if an individual’s filings are selected for audit; they will not be required to pay failure-to-file, failure-to-pay, or accuracy-related penalties with respect to the amounts reported on their returns, nor will they be required to pay information return or FBAR penalties.

However, similar to normally filed taxes, an individual will be required to pay any additional tax deficiencies that the IRS may determine. Returns filed under the Streamlined Foreign Offshore Procedures will result in retroactive relief for failure to elect income deferral on select retirement and savings plans that permit deferral.

Make the Most of Your Time Living Abroad with Help From a Certified Public Accountant

If you have lived abroad, currently live abroad, or are going to live abroad in the future, you should focus your attention on establishing a life for yourself instead of worrying about your United States taxes. Certified public accountant Ted Kleinman is prepared to assist with all of your issues related to tax preparation, tax planning, tax disclosure and compliance, audit representation, and transactional tax issues. Call US Tax Help at (541) 923-0903 or visit us online to schedule a confidential consultation about whether you qualify for eligibility for the streamlined IRS tax amnesty program, also known as the Streamlined Foreign Offshore Procedures.