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What Every U.S. Expat Needs to Know about Taxes

By Cody Moore

Summary: Cody Moore discusses FATCA and other reporting requirements for US expats including FINCEN Form 114, Form 8938, Form 5471 and Form 8865.

Expat Tax - What Every U.S. Expat Needs to Know about Taxes

Regardless if you're an employee being relocated to an assignment overseas or someone who is planning on retiring to a beautiful location outside of the United States - you need to be aware that you cannot escape U.S. taxation.

As a U.S. citizen or "green card" holder you are subject to being taxed on your worldwide income. Even if you have no U.S. income but are working for a foreign corporation or started your own business on a tropical island, you are still subject to filing and paying the necessary taxes. The rules have always been in effect but as individuals shelter their income overseas and with the U.S. government in desperate need of additional tax revenue, the government is going after U.S. expats for taxation. Even if your income is exempt from taxation due to Code Section 911 - Foreign Earned Income Tax Exclusion you are still required to file a tax return and claim the exclusion.

How is the U.S. government going after expats?

The United States has entered into FATCA (Foreign Account Tax Compliance Act) which is an agreement with hundreds of countries including Russia and China in which financial institutions are required to report a U.S. citizen's bank information to the U.S. government. FATCA requires foreign banks to disclose the identity and details of Americans with foreign accounts over $50,000. Failure for the foreign banks to report this information can result in the non-compliant banks to be "frozen" out of the U.S. financial markets. So, banks are complying with the agreement including the Vatican Bank.

Furthermore, the U.S. government recently enacted Public Law 114-94 in which the government can revoke or deny your passport if you owe taxes of $50,000 or more. You could literally be stranded overseas without a valid passport.

Therefore, in order for the government to track your assets and pay the necessary taxes on your foreign income - the IRS requires a lot of paperwork to disclose your foreign assets.

Some of the reporting requirements are (not all-inclusive):

  • FINCEN Form 114 (Foreign Bank Account Reporting)

    If the aggregate value of the foreign accounts exceeds $10,000 at any time during the calendar year then you are required to file this form. This includes any financial account in which you have signature authority.

  • Form 8938

    Statement of Specified Foreign Financial Assets. If you owned certain foreign assets that exceed certain filing thresholds then you are required to file this form with your tax return and disclose the foreign assets.

  • Form 5471

    Information Return of U.S. Person with Respect to Certain Foreign Corporations. If a U.S. person owns 10% or more in a foreign corporation then Form 5471 is required to be completed.

  • Form 8865

    Return of U.S. Person with Respect to Certain Foreign Partnerships. If a U.S. person owns 10% or more in a foreign partnership then Form 8865 is required to be completed.

Failure to file the necessary forms can result in a $10,000 penalty for each infraction. The IRS is aggressively pursuing the penalties especially under the failure to disclose the foreign bank information.

As one contemplates about living outside the United States and enjoy the life of living abroad - you cannot escape the U.S. government requirement for you to disclose your foreign assets and pay taxes on worldwide income.

About the Author

American Tax Group specializes in Expat Taxation. Cody Moore is the founder of the firm and has over 25 years' experience in taxation - ranging from IRS experience, public accounting, corporation taxation, tax resolution, and as an expat himself living part-time in Nicaragua. Please contact American Tax Group at 720-343-0025 or info@americantaxgroup.net so we can assist in your tax needs.

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First Published: May 24, 2016

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