US Embassy Staff Given More Time To Resolve Tax Issues

by Mike Godfrey, Tax-News.com, Washington

28 March 2007

The Internal Revenue Service is providing a further extension, until June 30, 2007, of the deadline for current and former US-based employees of foreign embassies, consular offices, missions and international organizations to participate in a one-time settlement initiative to resolve outstanding tax matters related to their employment.

Following requests from several embassies, the date is again being extended, to make certain that those wishing to participate in the initiative have the opportunity to do so.

The offer is open to employees of the aforementioned organizations who are US citizens, green-card holders, and foreign employees who have tax obligations. Accredited diplomatic personnel are generally exempt from income taxes on their wages under the Internal Revenue Code and international treaties or agreements.

The IRS estimates that as many as half of these employees subject to US tax fail to report their wages, claim deductions they are not entitled to, incorrectly establish SEP/IRA retirement plans, fail to pay self-employment tax, or fail to file tax returns.

To participate, employees must submit amended or original tax returns for tax years 2004 and 2005 that properly reflect their income and expenses. Participants in the settlement will not be required to provide tax year 2003 returns, which was previously part of the settlement eligibility requirement. In addition, participants with erroneously established SEP/IRA plans will not be required to distribute amounts contributed to these SEP/IRAs for tax years prior to the 2004 tax year. This change follows discussions with embassies, and provides consistency with the income tax portion of the settlement initiative.

The IRS has said it will remove the 2003 tax year issues from the settlement elections previously received from taxpayers.

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