New IRS relief procedures for some former citizens

Tax Hot Topics newsletterThe IRS announced new procedures on Sept. 6 for certain individuals who have relinquished, or intend to relinquish, their U.S. citizenship and who wish to come into compliance with their U.S. income tax and reporting obligations. Individuals may wish to come into compliance to avoid being taxed as a “covered expatriate” under Section 877A.

Generally, U.S. citizens who renounce or otherwise relinquish their citizenship must comply with federal tax requirements for the year of expatriation and for the five tax years prior to their expatriation. Under Section 877A, “covered expatriates” are treated as having disposed of all worldwide assets on the day before their expatriation date, and are required to pay an exit tax on the gain resulting from the deemed disposition of their worldwide assets. If expatriating individuals submit the information set forth in the procedures and meet the other requirements of these procedures, they will not be “covered expatriates” under Section 877A, nor will they be liable for any unpaid taxes and penalties for these years or any previous years.

Citizens who expatriate after March 18, 2010, and meet certain other requirements are eligible for these new procedures. These procedures are only available to U.S. citizens with a net worth of less than $2 million (at the time of expatriation and at the time of making their submission under these procedures), and an aggregate tax liability of $25,000 or less for the taxable year of expatriation and the five prior years. However, only taxpayers whose failure to file tax returns and pay taxes and penalties was due to non-willful conduct are eligible for these procedures.

The IRS is offering these procedures without a specific termination date and will make an announcement prior to terminating them. 

David Sites
Washington National Tax Office 
+1 202 861 4104

David Zaiken
Managing Director
Washington National Tax Office 
T +1 202 521 1543

Cory Perry
Senior Manager
Washington National Tax Office 
T +1 202 521 1509

Mike Del Medico
Washington National Tax Office 
T +1 202 521 1522
Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.