In quite a big item of news, the IRS have announced today that in 2024, they will be shifting their compliance priorities to FBAR non-filers.
This is a potentially quite significant shift from the IRS, and may spell that the end is near for the current amnesty programs which exist for US citizens who are behind on filing tax returns to the US.
For those who are not familiar with the FBAR, read on. The FBAR is the Report of Foreign Bank Accounts – Form FinCEN 114. The FBAR is required to be filed each year by any US Person (US citizen, green card holder or other US tax resident), when your combined non-US maximum bank and financial account balances exceed $10,000. This includes KiwiSaver, meaning as a result, most US citizens residing in New Zealand are required to file an FBAR each year.
The FBAR is one of the main aspects of the FATCA legislation which swept the world in the early 2010s, and created a new means for the IRS ensuring tax compliance of US citizens overseas. You may be familiar with the (nowadays) common question when opening any financial account in New Zealand “Are you a tax resident of the United States?”. This question is indeed related to FATCA, and also indirectly related to FBAR filing.
The FATCA system requires foreign banks (ie NZ banks) to report the bank account information of any US citizen customers each year to the IRS, via the IRD. This is a fairly automated electronic system, and doesn’t necessarily require human input from an IRS agent.
As a reminder for those who are unaware, the United States is one of three countries worldwide which ties tax residency to citizenship. This means that a US citizen residing in New Zealand, is usually required to file a tax return to the IRS each year to report their NZ income, along with filing an FBAR if they meet the $10,000 threshold.
Currently, a number of amnesty programs exist for people who are behind on their filings, or never filed at all, provided that their failure to file was non-wilful (ie they didn’t know they had to file). These programs allow US taxpayers to backfile a number of returns, with all late filing penalties waived.
In some cases, the penalties waived can be 5 figure sums, so these programs are hugely beneficial.
Whilst the IRS have at this stage indicated that they will mainly be focusing on FBAR non-filers with significant bank balances, it is potentially a test run for a more significant future enforcement on those who are behind on their tax filings.
If you are currently behind on your US tax filing, or have never filed before, this is an important time to become compliant. Its not too late to become US tax compliant, without any penalties. The IRS announcing that they intend to audit FBAR non-filers is a significant moment, and is an excellent heads up to anybody behind on their US returns, to catch up now whilst amnesty programs exist.
Reach out to us, we’ll be happy to help. Theres no client too big, or too small, and there’s certainly no such thing as a silly question, we’re here to assist. Feel free to email us on dave@usatax.nz, or visit http://usatax.nz