The IRS published the anticipated update to the Frequently Asked Questions relating to the Offshore Voluntary Compliance Initiative (OVDI) relating to reporting of foreign financial accounts (commonly referred to as the “FBAR” reporting). The guidance also includes favorable rules for (1) U.S. citizens living abroad and dual citizens with low compliance risks (generally less than $1,500 in back taxes per year); and (2) people with foreign retirement account issues. This guidance elaborates on an IRS Fact Sheet from December 2011 regarding taxpayers who are dual citizens of the United States and a foreign country.
According to the IRS press release:
- The guidance represents a series of common-sense steps to help U.S. citizens abroad get current with their tax obligations and resolve pension issues.
- The IRS will provide a new option to help some U.S. citizens and others residing abroad who haven’t been filing tax returns and provide them a chance to catch up with their tax filing obligations if they owe little or no back taxes.
- The guidance includes new procedures that will allow resolution of certain issues related to certain foreign retirement plans (such as Canadian Registered Retirement Savings Plans). In some circumstances, tax treaties allow for income deferral under U.S. tax law, but only if an election is made on a timely basis. The streamlined procedures will be made available to resolve low compliance risk situations even though this election was not made on a timely basis.
Although the details of the IRS guidance is still forthcoming, the IRS issued a general overview of the proposed new procedure, including how the IRS determines if a taxpayer is a low compliance risk and how taxpayers can take advantage of the procedure. In related guidance, the IRS also announced that they closed a technical loophole for taxpayers in the OVDI program.