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Persons who have relinquished or intend to relinquish their U.S. citizenship can, under certain conditions, benefit from a new tax relief program.
This temporary program, with no specific termination date, provides some U.S. citizens living abroad – including in Canada – to correct their tax situation and avoid significant penalties.
Note that all U.S. citizens are required to report their world income and pay U.S. tax, regardless of where they live and work.
The new program, Relief Procedures for Certain Former Citizens, was announced on September 6, 2019 by the Internal Revenue Service (IRS). It is more generous than other similar programs.
Eligible persons will be exempt from paying any tax due, along with applicable interest and penalties. This includes expatriation tax and penalties for failing to file certain tax and financial information returns.
The expatriates tax relief is a significant benefit, because individuals who have relinquished their U.S. citizenship but failed to complete form 8854 (Initial and Annual Expatriation Statement) are usually subject to this tax.
New program: eligible persons
The program applies solely to U.S. citizens, not to green card holders.
To avail themselves of the program, individuals have to meet several conditions, they:
- relinquished their U.S. citizenship after March 18, 2010;
- have never filed the U.S. general tax return (Form 1040); however, to submit their application, they must file this form and the required international information forms for the year of expatriation and for the five previous years;
- do not owe more than a total of US$25,000 in federal taxes in the year of expatriation and in the five previous years, excluding taxes and penalties;
- have a net worth of less than US$2 million at the expatriation date and at the date of making a submission under the program;
- have completed and filed form 8854 for the year of expatriation;
- failed to satisfy their tax obligations involuntarily, based on the good faith assumption.
Note that there is no restriction on the number of days the person stayed in the United States.
Failing to satisfy U.S. tax requirements is risky. Note as well that Canadian financial institutions are required to communicate some of your financial information to the IRS. It’s very important to correct your tax situation or you could be exposed to significant penalties.
How to I apply for this program?
One of the benefits of the new program, unlike other tax exemption programs such as Streamlined, is that it’s not necessary to have a U.S. Social Security Number (SSN). This simplifies the process for individuals who do not have an SSN.
However, the program has a strict process that requires various forms to be submitted, including those mentioned above. Since this is a temporary program, we recommend that you take the required steps as soon as possible.
Our International Mobility team can help by taking charge of your file. We’ll ensure you satisfy the program criteria and file the necessary documents.
We invite you to contact our team if you have any questions in this regard.