Delinquent tax returns for Dutch-born national with Dual Dutch and U.S. nationality
PLEASE NOTE THAT THE CASE DESCRIBED BELOW OCCURRED BEFORE 2012. AS OF JANUARY 2012 TAXPAYERS HAVE THE POSSIBILITY TO FILE DELINQUENT TAX RETURNS UNDER THE STREAMLINED FILING COMPLIANCE PROCEDURE, REQUIRING ONLY THE LAST 3 YEARS OF TAX RETURNS AND FBAR FORMS FOR THE LAST 6 YEARS.
The taxpayer was born in the Netherlands but both his parents were U.S. citizens at that time. He has a U.S. social security number but never filed a U.S. tax return. The taxpayer will be assigned to the U.S. by his Dutch employer and the employer wants to avoid any complications due to back taxes or non-compliancy. The employee and the employer engaged us to clean up any delinquent U.S. tax returns.
Advice to taxpayer and client
The statute of limitation for reporting income to the IRS never expires if a tax return is not filed for the relating year. The taxpayer could, therefore, technically, be required to file tax returns going back to his 18th year. This would be an impossible endeavor, however, based on consular guidelines and IRS rules relating to other compliance procedures, the minimum required amount of tax returns would be 5 years. If taxpayer demonstrates not being a tax risk for those years, then the 5 years would suffice. We proposed starting with the last 5 years of tax returns and then evaluating the need for older years. Client and taxpayer agreed.
Services to client
Gathering and organizing 5 years of information can be a time-consuming endeavor. Time, unfortunately, was a luxury: the client wanted to have the employee transferred to the U.S. within 2 weeks and until that time the employee was distracted by preparing himself and his family for the move.
We, therefore, visited the employee’s Dutch tax accountant to pick up a copy of his last 5 Dutch tax returns and the information on file. From the Dutch tax returns and the information, we puzzled together the employee’s situation. We prepared a short list of additional information needed and requested the employee not to bother making a summary, but just provide documents. The taxpayer couriered 4 binders to us from which we gathered the missing information. With the authorization of the employee, we requested his bank to perform a full review of all accounts and provide the highest account values per year per account. This was possible because of the preferred banking status of the employee.
On day 6 of the process, we finalized the 5 years of tax returns. The employee was subject to full Dutch taxation and therefore had plenty of credits to offset any U.S. tax with the exception of one year that included the sale of shares. This resulted in a balance due of slightly over $1000. We deemed the taxpayer to be of low tax risk and advised to limit the filing to the preceding 5 years only. Client and employee agreed. During an extended meeting with employee on the day 8, we reviewed all tax returns together. The employee signed and filed all tax returns the same day. We provided the employee with copies of the tax returns and a statement confirming that the tax returns had been filed should there be any questions upon entry in the U.S.
On day 27 of the process, we received the information from the bank and prepared the preceding 5 years of FBAR forms. We couriered the forms to the employee’s U.S. address for filing.