IRS Offers Tax Break for Certain Expatriates


IRS Offering Break For Some "Accidental Americans"

The Internal Revenue Service recently announced a break for some “accidental Americans,” giving certain expatriates who have renounced their citizenship a chance to escape the U.S. tax system.

The IRS said many people eligible for the relief have lived outside the U.S. for most of their lives and may not have realized that they had U.S. tax obligations. They may have become U.S. citizens by being born in the country or because they had American parents.

The changes would allow people with less than $2 million in net worth and less than $25,000 in taxes due over the prior six years to avoid paying those U.S. taxes. The relief comes with some caveats, including a provision that the tax avoidance can’t have been willful and a requirement to file six years of tax returns. The program may end in the future, but the IRS hasn’t decided when.

Policy Applies to people who relinquished their citizenship after March 18, 2010.

That is when the U.S. imposed broader reporting requirements on Americans’ offshore accounts, in response to years of tax evasion and bank secrecy.

The U.S. imposes taxes on all its citizens regardless of where they live. They can get some tax credits for what they pay to foreign governments but still often owe the U.S. That system is different from the rules used by most other countries, which base individual taxes on a person’s residence, not citizenship.

Many people have refused to comply with what they see as heavy-handed laws and enforcement, including some who renounced their citizenship without complying with the tax laws. Friday’s IRS guidance cushions the blow for those “accidental Americans” with minimal U.S. connections and tax burdens along with the willingness to give up their citizenship.