AW★S interviews Pavla Melkova, Taxpat GmbH
Pavla, you have recently started a new tax practice for Americans, what services do you offer?
Various services for a US taxpayer - tax compliance reporting for multiple years, annual tax return filings, reporting of foreign bank accounts, representing a taxpayer in front of the IRS, answering letters or notices, assisting in obtaining the IRS refunds, or tax reporting when renouncing US citizenship.
Anything you would like to share with potential clients?
I think it is important to know that there is a new compliance program offered by the IRS, it is called the Relief for Certain Former Citizens. This is in addition to the existing Streamlined Filing Compliance Procedures.
The Streamlined Filing Compliance Procedures have been in place for a few years and were designed for US taxpayers that were not aware of their filing obligations or were not advised properly to report all their foreign bank accounts or other assets had other involuntary omissions on their tax return and wanted to be in compliance.
The new program called Relief for Certain Former Citizens was announced by the Internal Revenue Service (IRS) on September 6, 2019 and is applicable for former U.S. citizens but also for those who are planning to expatriate.
Who qualifies for this program and what are the benefits of this program?
This is basically a program for those former US citizens that renounced their US citizenship without being aware of their filing requirements.
Let’s start with the benefits - anybody who qualifies for this program, will not need to pay the tax due for their prior years before renouncing, will become tax compliant and therefore will avoid being treated as a ‘covered expatriate’ and any potential penalties will be waived.
There is a list of requirements that have to be fulfilled in order to qualify for these procedures, among them having a net worth below USD 2,000,000 or an aggregate total tax liability of USD 25,000 or less for the five years preceding expatriation, having renounced their US citizenship after March 18, 2010, and never filed US tax returns.
It is a great program for those who qualify because, for example, only the penalty for failure to file the Form 8854, which is mandatory for the year of expatriation, is USD 10,000.
I will be happy to further discuss this with anyone interested in order to confirm if a person qualifies for these procedures.
What other new development are you aware of?
Another one concerns any US taxpayers who owns cryptocurrencies. The IRS considers any cryptocurrency an asset, not a currency in the traditional sense and requires related reporting of ownership, sales, exchanges, or of earning cryptocurrency while mining or as a form of payment for other services.
The IRS announced the plan to send out letters to cryptocurrency users where it believes that the income related to cryptocurrencies may have been misreported.
Such letter should not be disregarded, they must be replied after consultation with an expert.
Are there additional, interesting developments?
Yes, there is a new law that was enacted at the end of 2018 changing the treatment of alimony payments. This is of special concern for those who have been involved in divorce proceedings. Originally, the alimony payments were taxable to the recipient and deductible to the payor. The TJCA of 2017 includes a clause changing the tax treatment of alimony payments and in certain situations, the alimony income is not taxable and alimony payments are not deductible. This treatment automatically applies to all divorce agreements signed after December 31, 2018 but it may also apply to older divorce agreements if they are properly modified. It is especially applicable in cases where the payor of alimony is a non US citizen, therefore, does not need to deduct alimony payments on a US tax return and the modified divorce agreement may be easily arranged.
Thank you, Pavla, this has been a very informative conversation.
Thank you for all your questions, it was my pleasure to talk to you today.