TAXPAYERS LIVING ABROAD
The IRS has been focusing on U. S. taxpayers living overseas, who are often called expats or expatriates, for the last few years. The agency has been quite successful in collecting additional revenue for the U.S. government from people who haven’t filed income tax returns and informational returns. There are a number of ongoing international efforts for cooperation between countries and information sharing, for example the Foreign Account Tax Compliance Act (FATCA).
Tax return and informational return filing requirements apply to citizens, green card holders (permanent residents) and non-citizens who have worked in the U.S. and then left without filing a final tax return. Some permanent residents mistakenly believe that they no longer have to file tax returns with the IRS if their green cards have expired. Generally, you still have to file U.S. tax returns unless your resident status was judicially taken away from you, you have officially abandoned your residency status with the UCSIS or a U.S. consular officer, or have filed Form 8854 if applicable.
Non-citizens who have left the U.S. often fail to timely file their tax returns or file inaccurate tax returns. Either situation should be corrected as quickly as possible to avoid increased penalties and interest if tax dollars are owed.
Worldwide Income
U.S. tax laws require that a U.S. taxpayer report worldwide income on the tax return, unless the income is exempt from gross income by law. The IRS understands that sometimes the taxpayer has to pay income tax to the country of residence and that it would be unfair for the taxpayer to pay income tax to both the U.S. and the country of residence on the same income. The law does have options that a taxpayer may utilize to reduce or, in some instances, eliminate the double taxation of the same income.
The options can often be a bit complex and the taxpayer may have to weigh choices. The taxpayer might live in a country with tax treaty benefits, choose to claim the foreign earned income, foreign housing exclusion or foreign tax credit. The forms for foreign financial account reporting can be extremely confusing and often seem duplicative.
How to Comply with U.S. Tax Laws
There are potentially severe consequences for failing to file tax returns on time and, especially, for failing to timely file accurate informational reports of foreign financial accounts. The IRS has several programs to help overseas taxpayers get caught up with delinquent filings or to correct inaccurate filings. Below are links to the basic information about these programs.
Streamlined Filing Compliance Procedures
2012 Offshore Voluntary Disclosure Program
Delinquent International Information Return Submission Procedures
Delinquent FBAR or FinCEN 114 Submission Procedures
Quiet Disclosure
Quiet disclosure is when you file late informational returns or correct inaccurate informational returns. Please be aware that quiet disclosure doesn’t mean that you will slip by the IRS examiners. It may create a situation wherein you may not qualify for the streamlined procedures.