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Behind on your US expat tax returns? Time to get caught up!

By David McKeegan

Allianz Care
Allianz Care

Summary: It's estimated that only half of US expats are caught up on their US expat tax obligations. The IRS has made big changes to their amnesty programs and now is a great time to catch up! David McKeegan offers straightforward advice about the amnesty programs and how to file.

There are approximately 7.6 million Americans living overseas and it is estimated that only half are actually compliant with their US expat tax obligations. Are you? If not, now is a great time to get caught up! The IRS has made major changes to their amnesty programs which were created to help American taxpayers become compliant with their US tax filings. Whether you didn't know you even had a filing requirement or simply didn't understand what you were required to report, filing under the Streamlined Filing Procedures is the best way to ensure that the IRS doesn't come knocking!

The Streamlined Filing Procedures

This program was created primarily for taxpayers whose lack of filing was non-willful--meaning, you really didn't know you were supposed to be filing US taxes while living abroad. The majority of expats who are delinquent on their taxes are in this situation, so this is the perfect program to file under. The IRS recently removed the major restrictions that, in the past, excluded many expats from eligibility. These changes include:

  1. Extension of eligibility to include US taxpayers residing in the United States
  2. Eliminating a requirement that the taxpayer have $1,500 or less of unpaid tax per year
  3. Elimination of the risk assessment process
  4. Requiring the taxpayer to certify that previous failures to comply were due to non-willful conduct
  5. Waiving of all late payment, late filing and FBAR penalties for US taxpayers living abroad

So, what does this mean?

In a nutshell, this means that if you are behind on your US taxes, you can most likely file under this program and simply pay the cost of filing your tax returns (if you choose to work with an expat tax preparation company to assist you). There will be no additional penalties assessed--unless of course, the IRS believes that your lack of filing was purposeful (which is a rare occurrence).

In this case, you would need to consider filing under their other program, the Offshore Voluntary Disclosure Program (OVDP). This program is designed for those who may be facing criminal liability or significant penalties for a willful hiding of offshore assets. If you think you may need to file under OVDP, we highly suggest you contact a tax attorney who specializes in these types of cases prior to applying to the program. OVDP comes with steep penalties, so it's important to be sure it's the best program option before you go down that road.

What do I need to file?

Under the Streamlined Filing Procedures, you need to file 3 years of tax returns and 6 FBARs (Foreign Bank Account Report). FBAR is part of the US initiative to uncover tax cheats and requires you to report your foreign financial account balances if they are $10,000 or greater at any point during the tax year. This is an aggregate amount across all accounts--so if you had $4,000 in each of 3 accounts, all accounts must be reported. Even if you only had a $10,000+ balance for one minute during the year, this triggers a filing requirement. While you may not have an FBAR filing requirement, it may be wise to simply file them anyways to ensure you are completely complying with the rules under the program.

You will need to mail your actual tax returns, as the IRS doesn't accept e-filing for delinquent returns. You will need to file FBAR online, however, as this is the only option. This is filed separately from your US tax returns, as FBAR gets reported to the Department of the Treasury, not the IRS.

Include at the top of the first page of each delinquent or amended tax return "Streamlined Foreign Offshore" written in red to indicate that the returns are being submitted under these procedures. This is critical to ensure that your returns are processed through these special procedures. Otherwise your returns may appear to be filed as a 'quiet disclosure', which means that you were hoping to just slip those returns in without the IRS noticing. Many expats have successfully done this, but it is highly discouraged by the IRS. In addition, with the removal of penalties for filing late, why would you take the chance of the IRS flagging your returns for not filing under the proper procedure?

American expats are often worried about the process about getting caught up and are hesitant to do so. But with these IRS changes, there is no reason for concern about excessive penalties or prosecution, so we highly encourage you to take advantage of the Streamlined Filing Procedures and become compliant. The US did not set an ending date for the program, but they could discontinue it at any time--so don't delay!

About the Author

This post was written by David McKeegan, co-founder of Greenback Expat Tax Services. Greenback specializes in the preparation of US expat taxes for Americans living abroad. Greenback offers straightforward pricing, a simple, hassle-free process, and CPAs and IRS Enrolled Agents who have extensive experience in the field of expat tax preparation. For more information, please visit www.greenbacktaxservices.com.

More About Greenback Expat Tax Services For more information about Greenback Expat Tax Services or other US expat tax issues, please email us at info(at)greenbacktaxservices(dot)com.


First Published: Jul 31, 2014

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