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IRS Offers New FBAR and Tax Relief for Accidental Americans - by Michael Pereira and Ron Maiorano  

Global Tax Adviser


July 03, 2012


Michael Pereira
Toronto, International Executive Services


Ron Maiorano
Toronto, U.S. Tax


The IRS has announced simplified procedures to allow certain U.S. citizens or dual citizens residing outside the United States to become compliant with their U.S. personal tax and FBAR filing requirements without facing penalties or additional enforcement action (i.e., Form TDF 90-22.1, "Report of Foreign Bank and Financial Accounts"). Taxpayers may qualify for the procedures, which are effective September 1, 2012, if they owe little or no back taxes (i.e., $1,500 or less in tax for any of the covered years).

Previously, the IRS has provided relief and guidance for U.S. citizens or dual citizens residing outside the United States who did not file a required U.S tax return or FBAR by December 7, 2011. The IRS announced that taxpayers with outstanding tax returns who owe no U.S. tax will not be assessed with penalties for a failure to file a return or a failure to pay tax. Where taxpayers with outstanding tax returns do owe tax, the IRS said it may reduce or waive penalties where the taxpayer is able to show that the failure to file or pay was "due to reasonable cause and not due to willful neglect". Similarly, no FBAR penalty applies if the violation was "due to reasonable cause".


New procedure
Effective September 1, 2012, eligible taxpayers can file delinquent tax returns along with appropriate related information returns for the past three years, and file delinquent FBARs for the past six years. The IRS notes that submissions that present higher compliance risk will be subject to a more thorough review and potentially subject to an audit, which could cover more than three tax years. Full details of the new procedure have not yet been finalized.


Relief for RRSPs
The IRS will also streamline the process for U.S. citizens and dual citizens who have contributed to Registered Retirement Savings Plans or Registered Retirement Income Funds in Canada to defer taxation in the U.S. of income in those accounts, if they have not already done so, under the Canada-U.S. tax treaty.


KPMG observations
KPMG Tax Partners Ron Maiorano and Jim Yager (Toronto, International Executive Services) have met with U.S. officials and continue to work through the American Chamber of Commerce in Canada (AmCham Canada) to seek more relief for U.S. persons living and working in Canada.


Important qualification
This new procedure is separate from the current offshore voluntary disclosure program announced in January 2012. Taxpayers ineligible to participate under the offshore voluntary disclosure program are also ineligible to participate in this initiative.


Canada's response
In a press release, Minister of Finance Jim Flaherty noted that these new procedures were a positive development. Previously, Flaherty sent a letter to several major U.S. newspapers expressing Canada's concerns about the "nerve-wracking" effect that the FBAR reporting rules had on Canadians.


For more information, contact your KPMG adviser.

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