IRS Relief Procedures for Certain Former Citizens: A Comprehensive Guide

For certain individuals who have relinquished their US citizenship, the IRS offers a path to resolve longstanding tax compliance issues without incurring steep penalties. These relief procedures for certain former citizens are specifically designed for those who gave up their US citizenship after March 18, 2010, and who were unaware of their ongoing federal tax obligations. To be eligible, former US citizens must demonstrate they have not filed required tax returns due to non-willful conduct, and their aggregate tax liability for the five tax years prior to expatriation must be less than $25,000. Importantly, these procedures waive the requirement to pay a mark-to-market exit tax under IRC 877A and allow qualifying individuals to become compliant without facing penalties or interest charges.

Many former US citizens assume that renouncing citizenship severs all ties with the IRS, but this is not the case. The IRS relief procedures require the submission of six years of returns—five prior years and the year of expatriation. This includes filing income tax returns, disclosing foreign accounts under the Foreign Account Tax Compliance Act (FATCA), and satisfying all tax and reporting obligations. For those eligible, it’s a chance to clear up past compliance failures and avoid future scrutiny. US Tax Pros can assist with determining eligibility, compiling the necessary documentation, and ensuring submissions meet all federal tax requirements.

What are IRS Relief Procedures for Certain Former Citizens?

Understanding IRS Relief Procedures

The IRS Relief Procedures for Certain Former Citizens were introduced to assist individuals who have relinquished US citizenship but failed to meet their US tax obligations due to non-wilful conduct. These procedures offer a simplified path to tax compliance for former US citizens who were unaware they were required to file federal tax returns and disclose foreign accounts, even after expatriation. The programme removes the need to pay the mark-to-market exit tax typically required under IRC 877A, provided all conditions are met.

Many former US citizens were unaware of their continuing responsibilities, particularly if they left the US at a young age or held dual citizenship since birth. These relief procedures aim to resolve past compliance failures without imposing the penalties or interest normally associated with unfiled tax returns. By submitting six years of filings—covering five tax years before expatriation and the year of citizenship relinquishment—eligible individuals can demonstrate tax compliance and avoid future scrutiny from the Internal Revenue Service.

Who Qualifies as a Former US Citizen?

To qualify under these IRS relief procedures, individuals must have relinquished US citizenship after 18 March 2010 and must not have filed the required federal tax returns for the six tax years at issue. The former citizen must also not have previously been found guilty of tax evasion or similar willful violations. Those eligible often include dual nationals or those who unknowingly maintained US citizenship without fulfilling their income tax and reporting obligations.

Eligibility also depends on having an aggregate tax liability below a certain threshold—usually less than $25,000—for the five years prior to expatriation. This total includes income tax and any gift tax, but excludes penalties and interest. The procedures are designed for low-risk individuals whose failure to file was not intentional. Crucially, taxpayers must not have previously filed under any other amnesty or disclosure program and must submit a complete compliance package to the IRS.

Overview of Compliance Requirements

Those using the relief procedures for certain former citizens must submit complete and accurate federal tax returns for the six tax years at issue. This includes Forms 1040, FBAR (for foreign accounts), and any relevant disclosures under FATCA. All filings must be accompanied by a signed statement certifying that the failure to meet obligations was non-wilful and that the individual meets the criteria set out by the IRS. These returns must be filed together in one submission and clearly marked as part of the relief for certain former citizens.

In this submission, individuals must confirm that their average annual net income tax liability over the previous five years is under the specified limit. They must also ensure they do not exceed the aggregate total tax liability threshold. The returns must include accurate reporting of foreign tax, foreign pensions, income tax on all global earnings, and evidence of compliance with their US tax obligations for the years in question. The process enables eligible individuals to meet tax compliance requirements without facing the financial consequences of an expatriation tax or further IRS audit.

How to Renounce US Citizenship and Its US Tax Implications?

Steps to Renounce US Citizenship

Renouncing US citizenship is a formal process that requires appearing in person at a US embassy or consulate and signing an oath of renunciation before a consular officer. The process is not automatic and cannot be completed by mail. Individuals must schedule an appointment, pay the required fee, and complete Form DS-4079 to determine their intent. The act of renunciation is irrevocable and can have wide-ranging legal, immigration, and tax implications, so understanding the full consequences is essential before proceeding.

Once the renunciation is approved, the US government will issue a Certificate of Loss of Nationality (CLN), confirming that the individual is no longer a US citizen. However, ending citizenship does not immediately erase tax obligations. The Internal Revenue Code (IRC) stipulates that certain individuals must also complete final federal tax returns, which include Form 8854—a crucial document to certify tax compliance for the five years leading up to expatriation. Failing to do so could result in being classified as a “covered expatriate,” subject to the expatriation tax under IRC 877A.

Understanding the Expatriation Tax

The expatriation tax, often referred to as the exit tax, is a mark-to-market tax imposed on certain individuals who relinquish US citizenship or long-term permanent residency. Under IRC 877A, those who meet any one of three criteria—net worth of $2 million or more, average annual net income tax liability exceeding a threshold (e.g., $190,000+), or failure to certify five years of tax compliance—are considered “covered expatriates” and subject to this tax. The exit tax requires a deemed sale of worldwide assets at fair market value on the day before expatriation, potentially creating significant tax liabilities even without an actual sale.

To avoid this outcome, individuals must ensure they are compliant with income tax return obligations for the five years prior to renunciation and correctly file Form 8854. Certain exclusions and exemptions may apply, particularly for those who were dual citizens at birth or expatriated before the age of 18½. However, even in such cases, full tax compliance is mandatory. The rules are complex, and the financial impact can be substantial, especially when assets like pensions, property, or investments are involved.

Tax Obligations Post-Renunciation

Ending US citizenship does not automatically sever all federal tax obligations. Former citizens must still file a final tax return that includes all income up to the date of expatriation. This return must declare global income, calculate foreign tax credits, and disclose foreign accounts under the Foreign Account Tax Compliance Act (FATCA). For covered expatriates, the expatriation tax must be paid alongside this filing, unless a deferral election is made with adequate security.

Even after renunciation, past years of non-compliance can trigger audits or penalties. This is where the IRS relief procedures for certain former citizens may apply. These procedures are intended for those who unknowingly failed to fulfil their filing obligations and who meet the specific criteria, including having limited aggregate tax liability. Eligible individuals may be able to come into compliance without paying the exit tax, provided they submit the required six years of accurate federal tax returns and relevant disclosures. For others, ongoing monitoring of treaty benefits, pension income, or residual US-sourced income may still require reporting under applicable tax law.

What are the Income Tax Requirements for Former Citizens?

Income Tax Returns for Expatriates

Even after renouncing US citizenship, many former citizens have ongoing obligations under the Internal Revenue Code. Those who relinquish citizenship are generally required to file a final income tax return covering the part of the year up to their expatriation date. This return must include Form 8854, which certifies tax compliance for the previous five tax years. Failure to include this form or meet the five-year compliance test may result in classification as a “covered expatriate”, which could trigger the expatriation tax under IRC 877A.

Taxpayers who qualify for the relief procedures for certain former citizens may submit six years of federal tax returns under a streamlined approach. This is available only if their past non-compliance was non-willful and their aggregate total tax liability over those years does not exceed a set threshold. These procedures allow certain individuals to settle their tax obligations without paying the exit tax or facing penalties. The process helps those unaware of their filing requirements to come into compliance and avoid further complications under US tax law.

Tax Credits and Deductions for Former Citizens

Former US citizens, particularly those with income earned prior to expatriation, may still be eligible for certain tax credits and deductions on their final return. The most common include the foreign tax credit and the foreign earned income exclusion, which help reduce income tax liability where foreign taxes have already been paid. These tools are designed to prevent double taxation on income that is both earned and taxed abroad, often relevant in cases involving dual tax jurisdictions or tax treaties between the US and countries such as New Zealand.

Since deductions and credits apply only to the portion of income earned while still considered a US citizen or resident, careful allocation is essential. Inaccurate reporting may lead to disqualification from relief procedures for former citizens or assessment of back taxes and penalties. Accurate income sourcing, tax residency analysis, and understanding of applicable treaty protections are vital. The Internal Revenue Service requires full transparency and expects taxpayers to clearly report all items of income, deduction, and credit relevant to the tax period in question.

Federal Tax Liabilities and Reporting Obligations

Federal tax liabilities do not simply end with the act of expatriation. Former citizens are expected to fully disclose their worldwide income for the tax year in which they relinquish citizenship. Reporting obligations include not only income but also foreign assets under laws such as the Foreign Account Tax Compliance Act (FATCA). Penalties for non-compliance can be severe, especially where there is a failure to report overseas bank accounts or file required federal tax returns.

For those who meet the eligibility requirements, the IRS relief procedures for certain former citizens offer a path to resolve past filing issues without incurring significant penalties or the exit tax. However, the relief is conditional and only applies to individuals who have not exceeded the set total tax liability threshold and who were not aware of their obligations. In such cases, submission of accurate returns for the six tax years at issue is required, with proper certification that all income has been reported and tax obligations met. Full understanding of tax consequences and timely submission under these procedures can reduce future risk and ensure compliance.

How Does the IRS Determine Tax Compliance for Former Citizens?

IRS Relief Procedures for Past Compliance Failures

The IRS relief procedures for certain former citizens were introduced to assist individuals who have relinquished their US citizenship but failed to meet their tax filing obligations due to a lack of understanding or oversight. These procedures offer an opportunity to come into compliance without the financial penalties typically associated with late filings. Applicants must submit federal tax returns for the previous six tax years and include a statement of relinquishment. The programme is available only to those whose previous non-compliance was non-wilful and who meet the threshold for aggregate total tax liability.

To be eligible to use these procedures, former citizens must have renounced US citizenship after 18 March 2010 and not have filed as a resident in any other country during the six-year period. The relief procedures allow qualifying individuals to avoid the mark-to-market exit tax, provided they meet the income and asset thresholds. These include an average annual net income tax liability and asset test. The Internal Revenue Service will not assert penalties for failure to file required tax returns, as long as the submission includes all required federal tax returns and the taxpayer satisfies the compliance criteria.

Aggregate Tax Liability Calculations

The concept of aggregate tax liability plays a central role in determining eligibility for the relief procedures for former citizens. To qualify, the taxpayer’s total tax liability over the six-year period must not exceed a set threshold—currently $25,000 USD. This figure includes income tax but does not count penalties or interest. Accurate calculations are critical to the process, requiring submission of six years’ worth of income tax returns, even if no tax was owed in a particular year.

The IRS expects full transparency when determining if a former citizen meets this requirement. For those who earned income across multiple jurisdictions, such as New Zealand and the United States, the use of foreign tax credits may reduce income tax liability below the qualifying cap. Nonetheless, the taxpayer must still prepare full returns and calculate taxes as if all income were earned under US tax jurisdiction. Mistakes in calculating aggregate tax liability can disqualify the submission, which is why careful documentation and attention to tax treaties are essential for accurate reporting.

IRS Guidelines on Tax Filing for Former Citizens

Former US citizens are still expected to fulfil tax obligations for the part of the tax year during which they held citizenship. The Internal Revenue Service requires submission of a final tax return with Form 8854, which serves as a declaration of compliance with tax requirements for the preceding five tax years. Without this form and certification of compliance, an individual may be treated as a “covered expatriate”, triggering the expatriation tax under IRC 877A.

These IRS relief procedures for certain former citizens provide a simplified path to resolve prior tax filing issues without incurring penalties or facing the exit tax. However, all submissions must include complete and accurate information. This includes reporting global income, declaring all foreign accounts under the Foreign Account Tax Compliance Act, and addressing any gift tax or inheritance tax matters. The process is designed for individuals who were unaware of their federal tax obligations, offering them a chance to demonstrate compliance and close their filing history correctly. Ensuring that all income tax and reporting obligations are met is a core part of the IRS’s compliance review process.

What Are the Benefits of Using IRS Relief Procedures?

Tax Relief Opportunities for Eligible Former Citizens

The IRS relief procedures for certain former citizens were introduced to support individuals who relinquished their US citizenship without meeting their full tax compliance obligations. These procedures offer a practical route to correct past income tax filing issues while avoiding harsh penalties and the costly exit tax imposed under IRC 877A. Those who qualify can benefit from significant tax relief, particularly if they were unaware of their tax obligations at the time of expatriation or were misinformed about their reporting requirements.

By submitting the required federal tax returns for the five tax years prior to renunciation, eligible individuals can bring their filing history into line without facing enforcement actions. The process waives tax penalties for non-wilful non-compliance and can lead to a clean break from future US tax responsibilities. This opportunity is especially valuable for those whose aggregate tax liability remains below the specified threshold and who meet the condition of not being a “covered expatriate”. It represents a measured and fair approach by the Internal Revenue Service to facilitate compliance from those who seek to rectify honest mistakes.

Protection Against Expatriation Tax Claims

One of the most significant advantages of the relief procedures for former citizens is the potential protection they offer against expatriation tax claims. Under US tax law, individuals who renounce their citizenship may be subject to the exit tax, a mark-to-market assessment on worldwide assets. This can result in a large and immediate tax burden, even in cases where no cash was received. For eligible applicants, the IRS relief procedures can eliminate this concern entirely by offering a path to compliance that exempts them from the exit tax under IRC 877A.

For those who meet the criteria—such as relinquishing citizenship after March 18, 2010, having limited income tax liability, and satisfying the requirements for filing federal tax returns for the five years prior—these procedures provide peace of mind. They prevent the IRS from asserting significant tax liabilities that would otherwise apply, ensuring that former citizens are not punished for administrative oversights or misinformation. By resolving past compliance failures through this structured and clearly defined method, individuals can move forward without the risk of retroactive tax assessments tied to their former US citizenship.

Steps to Ensure Compliance with IRS Standards

To benefit from the IRS relief procedures for certain former citizens, individuals must complete a precise process that aligns with IRS standards. This involves submitting all required tax returns for the five tax years before renunciation, providing a detailed statement explaining the circumstances of non-compliance, and ensuring that all income tax and reporting obligations are accurately met. These steps are essential to demonstrate an intent to come into compliance and avoid future issues with the Internal Revenue Service.

Proper documentation and adherence to the procedures are essential, particularly for those with income sourced across jurisdictions or subject to foreign tax rules. Calculations must be made to ensure the average annual net income tax liability remains within acceptable limits and that all tax credits or deductions have been correctly claimed. Meeting the federal tax requirements as outlined is not only about filing—it’s about proving a history of honest oversight rather than deliberate avoidance. For eligible individuals, completing these steps accurately offers closure and full relief from the tax consequences associated with their prior US tax status.

How to Navigate Tax Treaties as a Former US Citizen?

Understanding Tax Treaties and Their Importance

Tax treaties play a critical role in shaping the tax obligations of individuals who have relinquished US citizenship but continue to earn income across borders. These agreements, negotiated between the United States and foreign governments, aim to avoid double taxation, allocate taxing rights, and improve overall tax compliance. For former US citizens, tax treaties offer valuable clarity on which country has primary taxation authority over various income types, such as pensions, dividends, royalties, and real estate gains.

The relevance of these treaties extends beyond just income categorisation. For those exploring the relief procedures for certain former citizens, understanding treaty provisions is essential to determine if any benefits apply to their situation. Many treaties include “saving clauses” that allow the United States to tax its citizens even when they are residents abroad, which can complicate matters for those who have recently renounced. However, once citizenship is relinquished, these clauses typically no longer apply, creating an opportunity to reduce tax liabilities in line with the specific treaty terms between the US and the individual’s new country of residence.

How Tax Treaties Affect Federal Tax Liabilities

The effect of tax treaties on federal tax liabilities can be significant for individuals who have renounced their US citizenship. While general rules under IRC 877A govern the expatriation tax, treaty provisions may alter or mitigate the extent to which certain income is taxed post-renunciation. For instance, treaties may exempt specific income from US tax entirely or offer reduced withholding rates, easing the income tax liability for those who qualify under the terms.

Where treaty benefits are claimed, it’s essential that the individual remains compliant with all reporting obligations and files a valid disclosure, typically through IRS forms such as Form 8833. Misinterpretation of treaty language or failure to follow proper tax filing procedures can lead to IRS scrutiny. In the context of the relief procedures for former US citizens, understanding how treaty rules interact with tax years and definitions of residency ensures that treaty protection is appropriately applied, helping individuals avoid unexpected tax consequences and secure fair treatment under international tax law.

Using Tax Treaties for Relief Procedures

Treaty protections can complement the IRS relief procedures for certain former citizens, particularly when calculating aggregate total tax liability or determining eligibility for relief. If a former US citizen has paid tax in another country under treaty terms, that may reduce their US tax liability for the five tax years prior to expatriation. This can make them eligible for relief if the average annual net income tax and other thresholds are not exceeded, and the correct documentation is submitted to show treaty-based taxation.

Using treaty benefits effectively requires precision and documentation. The Internal Revenue Service generally requires a consistent interpretation of the treaty and a demonstration that the taxpayer has fulfilled their obligations under both local foreign tax laws and US tax rules. For those making a submission under these procedures, it’s essential to account for treaty-based positions and reflect these accurately in federal tax returns. Doing so can bolster the case for non-wilful non-compliance and streamline the path to closure through the relief procedures for certain former citizens.

Conclusion

Navigating the complexities of tax compliance as a former US citizen involves understanding a web of regulations, from income tax returns and federal tax obligations to eligibility for relief procedures for certain former citizens. The IRS relief procedures were introduced to provide a pathway for individuals who relinquished US citizenship—often unknowingly out of compliance—to correct their tax filings without facing harsh penalties. Whether you’re dealing with the expatriation tax, five tax years of required returns, or evaluating your aggregate total tax liability, staying informed is essential to avoid long-term complications.

For many, the combination of technical tax law, evolving IRS guidelines, and the need to reconcile multiple tax years can be overwhelming. That’s why working with a knowledgeable team can make a real difference. If you’re unsure about your filing history, income tax liability, or eligibility to use these procedures, it’s worth speaking with professionals who understand these nuances. US Tax Pros specializes in helping former US citizens come into compliance confidently and accurately. Whether you’re considering renunciation, have already relinquished your citizenship, or simply need to understand the tax implications, expert guidance ensures you’re on the right path.