Get to know the authorIt’s not often the IRS offers taxpayers a break. Since COVID, however, the IRS has rolled out a series of relief initiatives, including extended filing deadlines and stimulus payments.
Wednesday, August 24th, the IRS announced the latest round of updates – focused on penalty relief for filers of 2019 & 2020 US tax returns, as well as filers of international information returns (IRRs) for 2019 and 2020.
“Throughout the pandemic, the IRS has worked hard to support the nation and provide relief to people in many different ways,” said IRS Commissioner Rettig yesterday. “The penalty relief issued today is yet another way the agency is supporting people during this unprecedented time. This penalty relief will be automatic for people or businesses who qualify; there’s no need to call.”
One critical caveat here: you must file your return by September 30, 2022.
Why is this so important for expats?
While each round of COVID relief was available to American expat taxpayers, this round is particularly relevant to those residing overseas.
Why? US taxpayers abroad often have foreign financial interests that require reporting each year to the IRS, including participation in a foreign company, trust, or receipt of a foreign gift.
US expats must report these interests on international informational returns. While they do not always have taxes associated with them, they are, if not appropriately filed, associated with heavy penalties.
What are the penalties for not filing international information returns?
The penalties start at $10,000 for each failure to file. Once taxpayers have been notified of the delinquency, however, additional fees accrue after the first 90 days. From there, each month adds an additional $10,000.
How do I file international information returns?
While there are many types of informational returns, only a few are eligible for penalty relief:
Form 5471
US taxpayers file Form 5471 to report their ownership in a company registered outside of the US.
Form 3520
There are a few different scenarios in which Form 3520 might need to be filed. The first relates to ownership in a foreign trust. If you are a US person who is considered the owner of a foreign trust, you will need to file Form 3520 each year by April 15th, or whenever your US tax return is due (June 15th for taxpayers living abroad).
The other scenario in which 3520 is filed by US taxpayers is when they have received a gift valued at $100,000 or more from a foreign person (read: someone who is not a US taxpayer) during the year.
Form 5472
Form 5472 is a return filed by US-based companies which are owned 25% or more by non-US taxpayers.
Can I get a refund on penalties I already paid?
The penalty relief here applies retroactively, so if the IRS already has applied penalties, it would come into play here. And the good news is that you do not need to take action in order to claim any penalties you’ve already paid back. Over the coming weeks, refunds will be distributed automatically. In total, the IRS expects to pay out $1.2 billion in refunds between now and the end of September 2022.
How do I know if I’m eligible?
Reiterating, in order to be eligible for this penalty relief, you must file your tax return or international information by September 30, 2022. So if you’ve already filed you won’t need to take any action. If you’ve not filed yet, it’s a great time to submit your tax return to the IRS.
“The notice also provides details on relief for filers of various international information returns, such as those reporting transactions with foreign trusts, receipt of foreign gifts, and ownership interests in foreign corporations. To qualify for this relief, any eligible tax return must be filed on or before September 30, 2022.”
Get caught up with help from Bright!Tax!
If you need some support in taking advantage of this opportunity, our team of experts is at the ready! Whether you’re behind a couple of years or are just learning about your filing obligations, we specialize in getting you caught up (quickly!).
