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When it comes to requiring people to pay taxes, the IRS only considers whether or not you are a United States citizen, not where in the world you live or if you hold a green card that was not turned in at a U.S. consulate office offshore. This means that people who have lived overseas for decades but have never technically relinquished their U.S. citizenship or Green Card can still owe taxes to the U.S. government each year. You also must comply with IRS regulations when relinquishing your citizenship or when relinquishing your Green Card or the IRS will continue to consider you a tax resident. Many folks in this situation are legitimately unaware that they owe money to the U.S. government. This is why, in September of 2019, the IRS began a new program called Relief Procedures for Certain Former Citizens (RPCFC) intended to help those who have recently relinquished, or intend to relinquish, their U.S. citizenship come into compliance with their tax obligations without incurring further penalties.
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The U.S. Supreme Court has ruled that once a person becomes a U.S. citizen, either through birth or naturalization, the United States does not have the power to strip that citizenship from them. Rather, if someone wants to renounce their U.S. citizenship, they must do it themselves by going through a fairly lengthy and involved process. An individual can renounce their citizenship by voluntarily and knowingly “making a formal renunciation of nationality” at a U.S. consulate or embassy abroad.
Choosing to relinquish your citizenship is a serious, irrevocable decision. Furthermore, it can come with serious tax consequences. If you fail to comply with your obligations under the IRS’s expatriation tax process, you could face further fines and penalties. You will need to obtain a certificate of loss of nationality from the Department of State and submit it to the IRS. The IRS will then charge certain fees, including an expatriation tax. It is best to contact an experienced tax attorney such as those at the Tax Law Offices of David W. Klasing before making such a serious decision so we can guide you through the process and the potential consequences.
The Relief Procedures for Certain Former Citizens (RPCFC) program was designed to help those who renounced their citizenship but failed to notify the IRS or take care of their tax obligations come into compliance without facing serious civil or criminal penalties. It is important to note from the outset that this program is only available to those who committed non-willful mistakes in failing to comply with IRS regulations related to taxes paid by those renouncing their citizenship. If you failed to pay even though you knew you had an obligation, you are not eligible for this program. You will be required to certify that your conduct was non-willful and could face criminal charges for lying to a federal agent if this is not true.
Even if your failure to pay required taxes was not willful, there are a number of different requirements that taxpayers must meet in order to be eligible for this program. First, you have to have renounced your citizenship after March 18, 2010. If you renounced before this, you cannot use the RPCFC program to bring yourself into tax compliance with the IRS. You also cannot have filed a tax return as a U.S. citizen or resident since you relinquished your citizenship.
If you meet these standards, the IRS also imposes limits on who can enter the program based on the amount of money you make in a given year and the amount of your net worth. You have to have an annual income below a threshold amount, set at $168,000 in 2019, in order to qualify for the program. You also must have a total net worth beneath $2 million.
Individuals who believe they are eligible should contact an experienced international tax attorney who can walk them through the application process. You will need to submit outstanding U.S. tax returns for the previous five years as well as for the first year in which you renounced your citizenship. If your tax liability does not exceed $25,000 for the six years in question, you will not be required to pay any U.S. taxes and you will not be assessed any fines, penalties, or interest. If the amount you owe exceeds $25,000, you may owe some back taxes and fees, but will still likely avoid and further civil or criminal penalties by filing through RPCFC.
Those who relinquish their citizenship and stop paying taxes without following all the procedures required by the IRS can end up facing serious back taxes, as well as potential civil or criminal penalties, years down the line. The RPCFC program gives those whose conduct was not willful and who meet a series of other requirements a chance to get themselves into compliance. At the Tax Law Offices of David W. Klasing, we can help you determine if this program is for you. If it is not, we can use our years of skill and experience to help you figure out another way to deal with your tax debt. Call us today at (800) 681-1295 to discuss your options.
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