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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
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Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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I need tax professional expert in U.S. reporting requirements

Resolved Question:

I need tax professional expert in U.S. reporting requirements to the I.R.S. and knowledgeable of their likely reaction to a given situation. I'm a U.S. citizen,beneficiary of a foreign(Jersey) trust which has given me distributions over the years,tax free from a U.S. point of view as there's been no income after trust expenses and no capital gain. But I need to have reported these benefits to the I.R.S. which I have not.
Indeed,I haven't filed a U.S. tax return for many years,though I file and pay taxes in the U.K. where I live. What penalties might I face were I to approach the I.R.S.? And what,if any,room for manoeuvre is there,ie can one bargain with them;or do they rigidly lay down the law?

Yours,
sesseuid
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

NPVAdvisor :

Hi,

NPVAdvisor :

If you have permanent domicile in the UK and have been paying taxes there, the US/UK double taxation treaty states that you will be considered a resident, and there fore taxable in, the UK

NPVAdvisor :

See this:

NPVAdvisor :

Under Article 4 (Residence), a person is generally treated as a resident of a Contracting State if
that person is, under the laws of that State, liable to tax therein by reason of his domicile,
residence or other similar criteria.

NPVAdvisor :

Here's the technical explanation of the treaty: Technical Explanation

NPVAdvisor :

Here's the treaty itself: Income Tax Treaty Note Article 23, elimination of Double Taxation

NPVAdvisor :

As I still don't see you coming into the chat here, I'll move us to the Questions and Answer mode ... Maybe that will help

NPVAdvisor :

f this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.


HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

Expert:  Lane replied 1 year ago.



Hi Kevin,

... just checking back in, as I never saw you come into the chat.

Let me know if you ave further questions.

Lane
Customer: replied 1 year ago.


Thanks for your answer but you didn't answer the question. I didn't ask


about taxation,but the possible penalties for non reporting to the U.S.


distributions from a trust,and whether the I.R.S. is open to any bargaining on the severity or size of the penalty.

Expert:  Lane replied 1 year ago.

My apologies I guess I was not making myself clear.



There are two types of penalties from the IRS regarding these omissions:

(1) Failure to file

and

(2) Failure to pay

Both of these penalties, however, have as a basis, taxes due.




Failure to pay:

The late payment penalty applies to any portion of federal tax that is unpaid as of the payment due date. For each month or part of a month that the tax remains unpaid, the IRS imposes a failure-to-pay penalty of half of one percent (0.5%). The late payment penalty cannot exceed 25% of the net amount of the tax due. The IRS may waive the penalty if the taxpayer can show there was a reasonable cause for the late payment. (Internal Revenue Code section 6651 paragraphs (a)(2) and (b)(2).)

Again, however, if your assumption is correct, regarding no TAXABLE income, this penalty has no basis




Failure to File:

The late filing penalty applies to any portion of tax that is unpaid as of the payment due date and the tax return is filed after the filing due date. The failure-to-file penalty is calculated based on the time from the deadline of your tax return (including extensions) to the date you actually file your tax return. The penalty is 5% for each month or part of a month that the tax return is late, up to a maximum penalty of 25%. "If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax" (from Publication 17, section on penalties). The late filing penalty is based on the net amount of tax due as shown on the tax return. This penalty can be waived at the discretion of the IRS if taxpayer can show that the return was filed late due to a reasonable cause. (Internal Revenue Code section 6651 paragraphs (a)(1) and (b)(1).)

Again, basis here is "net amount of tax due"




So, as I have already mentioned. When there is no tax due there is no penalty. Both of the penalties have, as a basis, taxes due. If there are no taxes due, there are no penalties.

IN the US, tax returns are filed either ...

(1) to calculate the amount of taxes due and pay those taxes, OR

(2) to collect refunds where withholding has been done against wages or there are other credits that may be due the taxpayer.




Your assumption that a return needs to be filed is invalid, UNLESS, you are referring to WITHHOLDING that should have been done, against US source income or US "effectively connected" income.




If this is not either "US source income"

(U.S. Source Income - income is generally considered U.S. Source if the location of the activity for which the payment is being made is in the U.S.):

OR

Income "effectively connected"

http://www.irs.gov/Individuals/International-Taxpayers/Effectively-Connected-Income-(ECI)



See this: (from IRS enrolled agent XXXXX XXXXX)

http://taxes.about.com/od/backtaxes/qt/irs_tax_penalty.htm

And see this from IRS:

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Filing-Late-and-or-Paying-Late
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4501
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 7 other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.

Thanks Kevin,

You are fine.

Let me know if you ave further questions on this

Lane

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Lane
Lane
JD, MBA, CFP, CRPS
3637 Satisfied Customers
Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986