Have you failed to file US Expat Tax Returns? There Are Two Programs You Can't Afford Not to Know About

As a company that focuses on helping Americans living abroad with their tax obligations, we can attest to the fact that it's pretty common for Americans to fail to file. However, with the increased scrutiny (which each year appears to be increasing) by the IRS and the Treasury, more people than ever are taking the time to become compliant. This article outlines two programs that the IRS offers that allow for lower penalties for those who want to voluntarily come forward and get back on track. Some Americans also choose to "quietly disclose" (ie to simply file back taxes and FBARs and try to stay under the radar), doing so means you are not eligible for the lower penalties if the IRS chooses to enforce them in your case (you would not be able to take advantage the lowered penalties of these two programs).

Individuals living overseas who are delinquent on their US tax returns and Foreign Bank and Financial Accounts (FBAR) forms now have the opportunity to voluntarily file these forms with lower or no consequences. There are two programs: The Offshore Voluntary Disclosure Program (OVDI) and the Streamlined Procedure. The Streamlined Procedure is for low risk expats and, for those who qualify, allows the applicant to get off without penalties. The Offshore Voluntary Disclosure Program (OVDP) offers a lower penalty than if the IRS finds you (max penalty of 27.5%) and is for anyone that doesn't qualify under the IRS's qualification of a "low risk" US tax payer . Since each program has different requirements (and consequences), it's important to choose carefully! If you are filing for either of those programs, it is important to seek advice and assistance from a qualified US tax preparer (an Expat CPA or Enrolled Agent) and potentially even a tax lawyer with experience with US expats, depending on the specifics of your situation.

The Streamlined Procedure

This program, which has been in effect since Sept. 1, 2012, applies to "low-risk" US expats who owe less than $1,500 in US taxes on any tax returns for the last three years. Only individuals who have resided outside of the US since January 1, 2009 are eligible to file under this program. A questionnaire to help determine whether you are a low- or high-risk filer can be found here: http://www.irs.gov/pub/irs-utl/non-resident_questionnaire.pdf

The Offshore Voluntary Disclosure Program (OVDP)

This program applies to US expats who have failed to file FBAR forms or US tax returns in previous years who don't qualify as "low risk". OVDP is designed to allow US expats who have foreign accounts to become compliant with US tax laws. The program, which is the third of its kind, has no deadline for the 2012 calendar year. Like the Streamlined Procedure, however, it could end at any time without notice. This is the third iteration of this type of program and so far, each program has carried harsher penalties than the last. So, if you are considering taking advantage of this program, sooner is better than later.

It is important to note that US expats can only file under either the Streamlined Procedure or OVDP. So although the filing procedures and the penalties for the Streamlined Procedure may seem less cumbersome and costly, individuals filing under this program who are not deemed low risk (ie are not eligible) could face more scrutiny and higher consequences by filing under the wrong program.

Failing to file US tax returns and FBAR forms could result in criminal prosecution with severe fines and even jail time. If you have questions about filing late tax returns or FBARs through either of these programs, contact Greenback for help.

This article was written in August 2013 by David McKeegan, Greenback Expat Tax Services for ExpatExchange.