US Cross-Border Tax Blog

Published by W.L. Dueck LLP

Steven Flynn

Update on IRS Streamlined Procedures – Non-residency Requirements

On October 13, 2014, the Internal Revenue Service issued further guidance to their revised rules and guidelines on the Streamlined Procedures.  We previously wrote about the IRS Streamlined Procedures and a link to our previous blog entry is here

In June 2014 when the revised rules were released, we expressed concern over the nonresident requirement.  In particular, the requirement that a person spend more than 330 days outside the US in one of the last three years may disqualify snowbirds, business travelers and frequent cross-border shoppers.

Yesterday, the IRS confirmed that it would not change the rules or guidance on the amount of time a person can spend in the US. Therefore, frequent travelers to the US may not qualify for the Foreign Streamlined Procedures and delinquent US tax filers cannot qualify for the Domestic Streamlined Procedures if they have not filed recent US tax returns.  Speaking in late September at the Civil and Criminal Tax Penalties session of the American Bar Association Section of Taxation meeting in Denver, Colorado, Jennifer Best, senior IRS Advisor, stated that the IRS would not make changes to the eligibility criteria announced in June 2014.  Ms. Best commented that the IRS did build some flexibility in the eligibility criteria deliberately by requiring individuals meet the outside US residency test in only one of the last three years.

It is disappointing that the IRS did not change the eligibility criteria despite feedback from the international tax community. However, Mr. John McDougall, special trial attorney and division counsel, IRS Small Business/Self-Employed Division, noted that nonresident individual taxpayers who don’t meet the objective eligibility criteria can still file delinquent US tax returns. “Somebody who’s lived in Canada for 40 years and still doesn’t meet this requirement — and is a nonfiler so he can’t come in under the domestic piece — can still file a delinquent return and include a statement explaining why we shouldn’t put a penalty on it,” McDougal explained. “For those people who fall through the cracks and don’t quite meet the eligibility criteria, they can still probably get penalty relief. It’s just going to be case by case, rather than automatic.”

Thanks to Tax Analysts for their summary of the IRS representatives’ comments.

Written by Steven Flynn, CA, CPA

2 responses

Hey Steven, the 330 day requirement only applies to US citizens or permanent residents. For others, they just need to meet the “substantial presence test” for one of the three years, which is different than the 330 day requirement.

    In general terms, most of the individuals who participate in either the Foreign or Domestic Streamlined IRS Procedures will be either US citizens or US residents, which is why we and other practitioners are concerned over the 330 day requirement.

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