A new voluntary disclosure program for U.S. citizens and green card holders living abroad, including an estimated one million living Canada, will be announced in the coming weeks and is expected to provide relief for those who have failed to keep up with their U.S. tax filing requirements and are looking to catch up.
“I think this [new program] will be something very helpful, particularly for U.S. citizens who are living in Canada,” said Stanley Barg, a tax and estate lawyer with Kozusko Harris Duncan LLP in New York, speaking at the STEP Canada national conference in Toronto on Monday.
In a speech given earlier this month, the new commissioner of the U.S. Internal Revenue Service, John Koskinen, indicated that the tax agency was considering changes to its voluntary disclosure programs to be more “accomodating” to those individuals whose “compliance failures have been of the non-willful variety,” citing as an example U.S. citizens who have lived outside the U.S. for most of their lives.
“We have been considering whether these individuals should have an opportunity to come into compliance that doesn’t involve the type of penalties that are appropriate for U.S.-resident taxpayers who were willfully hiding their investments overseas,” said Koskinen, who added the measures would be announced soon.
The U.S. tax system is based on citizenship, not residency. U.S. citizens, U.S. green card holders, and other U.S. residents for tax purposes are liable for U.S. tax, and must make all their U.S. tax filings, annually on their worldwide income, irrespective of where they live.
In recent years, the U.S. has offered a number of offshore voluntary disclosure programs, which allowed its citizens to proactively approach the IRS and become complaint with all their U.S. tax filing obligations.
While no details about the new program have been released, cross-border tax experts are hoping it will provide a more lenient way for ordinary U.S. taxpayers living abroad who are inadvertently non-compliant, but who do not present a high risk for tax evasion.
Since 2008, the U.S. government has been much more vigilant in trying to fight offshore tax evasion by its citizens, and has introduced a number of measures and programs towards this end. On July 1, the U.S. Foreign Account Tax Compliance Act, which effectively compels foreign financial institutions to report on their U.S. citizen account holders, will come into force. Earlier this year, Canada and the U.S. signed an Intergovernmental Agreement through which FATCA is to be implemented.