When an individual chooses to move to another country, he or she may relinquish his or her United States citizenship. However, many of these former citizens may not know that they have unfulfilled tax obligations to the United States. Unpaid back taxes can result in additional debt due to accruing interest as well as serious penalties. Fortunately, the Internal Revenue Service (IRS) recently announced the creation of several procedures through which former citizens can be relieved of their U.S. tax responsibilities.

Former Citizens Must Meet Certain Criteria for Tax Relief

If you are an expatriated person who is not currently compliant with U.S. tax laws, you may worry whether or not you can even afford to pay your back taxes. Unfulfilled tax obligations can quickly spiral out of control – especially when a person was not aware that he or she even owed back taxes. In an effort to help former citizens come into compliance with the law, the IRS is allowing qualifying individuals to be relieved of their tax obligations. These individuals must meet certain criteria in order to be eligible for tax relief. The criteria for “Relief Procedures for Certain Former Citizens” include:

When an individual fails to pay his or her taxes, the Internal Revenue Service (IRS) has the authority to collect taxes, penalties, and interest by garnishing the individual’s wages. Typically, creditors are required to get a judgment before they can garnish wages, but the IRS does not need to meet this requirement. Furthermore, the IRS is often authorized to garnish a much greater amount of a person’s wages than other creditors can take. The best way to avoid wage garnishment is to prevent collection actions in the first place. However, this is not always possible. Fortunately, there are still actions you can take that may be able to stop wage garnishment.

Responding to a Collection Due Process Notice

When tax debt goes unpaid, the IRS may issue you a Collection Due Process notice. This notice is to inform you that your future wages will be intercepted for the purpose of debt repayment. You then have 30 days to request a hearing and formally respond to the notice. The most common ways to prevent IRS collection actions such as wage garnishment include:

If you have to pay estimated quarterly taxes, it is critical to pay the correct amount. Underpaying can result in a penalty, and overpaying gives what is essentially an interest-free loan to the government that cannot be recouped until a return is filed.

This is especially true in light of the Tax Cuts and Jobs Act of 2017, which substantially changed income taxes. The law altered the tax brackets and tax rates for individual or married taxpayers, made changes to the allowable deductions for business expenses, increased the standard deduction and child tax credit, took away personal exemptions, and limited or ended other deductions. Because of this, many taxpayers will need to adjust the amount of the taxes they remit each quarter via estimated tax payments. 

Who Must Pay Estimated Quarterly Taxes?

Typically, taxpayers have to make estimated tax payments if they expect to owe tax of $1,000 or more when their returns are filed. One common category of taxpayers who should pay estimated quarterly taxes are people who are self-employed. In addition, investors and retirees often need to make these payments because they have a substantial portion of income that is not subject to withholding. Other income that is typically not subject to tax withholding includes interest, capital gains, stock dividends, alimony or spousal support, and income from rental property.

The administration of retirement accounts is notoriously technical, and mistakes by plan sponsors can occur. Furthermore, since an account holder will be maintaining and contributing to a retirement account for many years, there are often changes that must be made. Tax issues may arise when 403(b) and 401(a) retirement plans need to be corrected, and the IRS must typically be notified of any corrections. Fortunately, the IRS has several self-correction mechanisms in place that allow plan sponsors to resolve errors or mistakes on their own.

The IRS has three correction programs:

1. Self-Correction Program (SCP): Used to amend certain plan failures without communicating with the IRS or paying a user fee.
2. Voluntary Correction Program (VCP): Used to rectify failures not eligible for the SCP or get the IRS’s statement in writing that specified failures were correctly resolved.
3. Audit Closing Agreement Program (CAP): Used to correct failures found in the course of an IRS audit that cannot be self-corrected.  

The IRS recently announced an expansion of the self-correction program to allow additional types of failures to be remedied through the SCP instead of requiring parties to make a VCP submission to the IRS. The VCP process can often be expensive and lengthy.

There are several ways the IRS will be involved in the estate of someone who has died (known as a “decedent”). The IRS is notorious for enforcing payment of the taxes it claims it is due, including in situations involving a deceased person’s estate. 

Tax issues will be important to a deceased person’s personal representative, executor, successor trustee, and heirs, because the estate must pay all taxes due before the estate’s assets can be distributed to the beneficiaries. The IRS can even audit the tax returns of a dead person.

The estate will have to pay any income taxes due for the year of the person’s death (as well as for any year that the decedent did not file). Just like a taxpayer filing his or her income taxes each year, the estate administrator will file a Form 1040 for the estate. Depending on how organized the estate is, the estate administrator may need to file a Request for Transcript of Tax Return in order to get needed documents related to the deceased person’s income and taxes.