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Overseas U.S. citizens with unfiled returns get help from IRS

Some former California residents may have left our state for foreign climes. But while they may have freed themselves from the infamous Southern California traffic, their overseas residence does not by itself relieve them of the responsibility to comply with our country's tax laws.

The Internal Revenue Service is currently conducting its third version of the voluntary disclosure program, which is designed to get taxpayers with offshore accounts to come into compliance with applicable laws. Last month, the IRS announced a related, though distinct, program also aimed at helping some taxpayers with unfiled tax returns.

This measure is targeted specifically at U.S. citizens living abroad who are what the IRS terms "low compliance risks." These are taxpayers who have not filed Reports of Foreign Bank and Financial Accounts or have not filed federal tax returns, but who owe $1,500 or less in taxes for any given year in which they did not send in a return.

Under the terms of the program, taxpayers will have to provide the IRS with any FBARs they have not filed in the last six years as well as any returns and associated information returns not filed in the previous three years. In exchange for getting up-to-date with their filing requirements, the IRS will not impose additional penalties on the delinquent taxpayers.

But the agency will not be so lenient with those who, in its judgment, do not fall within the "low compliance risk" category. Such taxpayers could have their filings subject to an audit that stretches beyond the three year period established by the program.

Getting into compliance with all filing requirements can be a daunting task, but the problem will not go away by ignoring it. Taxpayers should understand what options best fit their circumstances and offer the greatest chance for mitigating potential penalties.

Source: Internal Revenue Service, "IRS Announces Efforts to Help U. S. Citizens Overseas Including Dual Citizens and Those with Foreign Retirement Plans," IR-2012-65, June 26, 2012.

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