Non-Compliant Americans – a suggestion for the IRS ..

01 January, 2015 - By admin

This post is also available in: Français (French)

Our office has daily contact with Americans in Canada and their US tax filing challenges, and we could tell you many, many stories about people stuck in crazy dilemmas.

I want to make the following observation regarding Americans who are not compliant with their US tax filing requirements.

The IRS has heavy handed regulations in place to go after severe abusers of the US tax system, such as criminals, money launderers, drug dealers, etc. Most people are not opposed the IRS going after these people, and having the tools in place to ensure that the abusers cannot play the system and come out winners.

On the other end of the spectrum, the IRS introduced the Streamlined Program to help non-compliant Americans with simple situations come onside with their US tax filing requirements. The Streamlined Program is very useful for very simple scenarios, such as an employee with a low salary. However only “low risk” filers can use the Streamlined Program, and the criteria for low risk is so restricted that actually many Americans get defined as “high risk” (see: http://www.irs.gov/uac/Instructions-for-New-Streamlined-Filing-Compliance-Procedures-for-Non-Resident-Non-Filer-US-Taxpayers ).

These individuals then are exposed to full penalties for FBAR, forms 8938, 3520, 3520a, missed the deadline for 8891, etc etc etc. These penalties can easily get into six figures.

Basically these individuals have a big filing problem, and no path open for them to come onside without huge penalties. OVDI is an always an option, but OVDI does not relieve them of the penalties. Also the OVDI is a very expensive undertaking, and OVDI is completely backlogged with files.

In my opinion, what is required is either:

A major relaxation in what is defined as “low risk” in the Streamlined Program” or;
Another channel for middle of the road non-compliant Americans to come onside.

I know that there are many non-compliant American’s in Canada who would benefit greatly from such changes – right now many are stuck between a rock and a hard place!