How to Relinquish Citizenship for Tax Purposes
Before you relinquish your U.S. citizenship in order to avoid paying taxes, be advised that some taxpayers will be subject to an expatriation tax, also known as the “exit tax” upon renunciation of citizenship. The IRS will effectively act as though you sold all of your worldwide assets in a taxable transaction the day before you expatriated.  Long-term capital gains tax rates are currently as high as 23.8%, including the net investment income tax, so plan your expatriation will the help of a tax attorney.

How to Relinquish Citizenship

Both U.S. citizens and green card holders are considered U.S. taxpayers, and each category of taxpayers has different rules for relinquishing their tax citizenship. Citizens must officially relinquish their citizenship, shown by a certificate of loss of nationality or by a U.S. court’s cancelation of a naturalized citizen’s certificate of naturalization.

How Many Years Does a Tax Audit Cover
The IRS generally will look at returns filed during the last three years during a tax audit. The Assessment Statute Expiration Date (ASED) places a limit for the time period the IRS has to make a tax assessment. The ASED is three years from the day the return was filed, but there are a number of exceptions to this three-year limit.

How Failing to File Affects a Tax Audit

If you do not file a tax return, the IRS has an unlimited amount of time to assess the tax. The IRS usually does not look back more than six years, but they can if they choose to. Once you file a delinquent return, the three-year ASED begins to run.

How To Apply for Currently Not Collectible Status
If you are unable to pay your tax debt, you can request that the IRS report your account as currently not collectible (CNC). This will temporarily delay all collection activities by the IRS.

Applying For Currently Not Collectible Status

The most common reason the IRS determines that an account is currently not collectible is due to economic hardship. You will often be required to submit a Collection Information Statement when applying for CNC status. This statement lists all of your assets, income, and expenses. The IRS will not take your word for it if you claim you have a financial hardship; they will make their own determination based on your financial information.

Do I Qualify for First Time Tax Penalty Abatement?
Many taxpayers are unaware that they may be eligible for relief from tax penalties under the IRS First Time Penalty Abatement policy. The penalty abatement is available for penalties due to a failure to file, failure to pay taxes, or a failure to deposit taxes.

Requirements for First Time Penalty Abatement

To qualify for First Time Penalty Abatement, you must meet the following requirements:

What is the Exit Tax Charged to Expatriates?
Some taxpayers may be attracted to the idea of expatriating in order to reduce their tax liability, but the “exit tax” that must be paid upon renunciation of citizenship can complicate those plans. This exit tax, also known as the expatriation tax, treats the taxpayer as though he or she has sold all assets at fair market value the day before expatriation. Obviously, this could result in an enormous tax bill for some taxpayers.

Covered Expatriates Under the Exit Tax

Only “covered expatriates” are subject to this tax. Three categories of taxpayers could be considered “covered expatriates”.

What to Do If You Are Accused of Tax Fraud
Tax fraud is a crime that involves intentional wrongdoing when failing to comply with a tax law. If you simply make a mistake when filing your taxes, the IRS may charge you with civil penalties, but they will not pursue any criminal charges. If, however, the IRS believes that you intentionally failed to meet your obligations as a taxpayer, you could face criminal penalties and jail time.

Tax fraud can result in up to 5 years and prison and a $500,000 fine. The IRS does not commonly pursue criminal charges, so if they have singled you out for a criminal tax violation, you should immediately consult with a tax attorney.

What to Do If You Are Accused of Tax Fraud

How to Fight Tax Fraud Penalties
Tax fraud occurs when an individual’s conduct goes beyond negligence and becomes intentional or willful wrongdoing. It has been described as an intentional violation of a known legal duty.

If you want to fight tax fraud penalties, you will have to convince the IRS that they have insufficient evidence to prove that your acts were willful. You may be able to fight the charges against you, or negotiate the amount of penalties owed, but you must consult with a criminal tax attorney before saying anything to the IRS.

Badges of Tax Fraud