What is “Willful” and what is “Non-Willful” for USCs and LPRs Residing Overseas Who Have Not Filed U.S. Tax Returns or FBARs?

A LPR residing predominantly in a country with a US. income tax treaty (of which there are 68) may be in the best position to “clean up” their U.S. tax filing and return positions.  Specifically their facts might allow them to file as a non-resident under the “tie-breaker provisions” – typically Article 4); and indeed such filings might be applicable for several prior years.

Specifically, the statutory language of IRC Section 7701(b)(6) has three tests for when the individual is no longer a LPR for federal tax purposes:

1. The individual is treated as a resident of a foreign country under the provisions of a tax treaty;
2. The individual does not waive the benefits of the treaty, and
3. Notifies the Secretary of the commencement of such treatment. (I-407...etc.)

If the LPR has not been “non-willful” (double negative intended) by not filing U.S. income tax returns, interesting legal questions are raised as to the consequences to the LPR.

http://tax-expatriation.com/2014/07/18/part-i-what-is-willful-and-what-is-non-willful-for-uscs-and-lprs-residing-overseas-who-have-not-filed-u-s-tax-returns-or-fbars/