It’s quite common for US expats to fall behind in filing their US tax returns while living abroad – whether thinking they no longer need to file, since they’ve established residency in another country paying taxes there, or simply being busy trying to adjust to a completely different culture, living and work environment abroad.
However, by falling out of compliance with their US tax filing obligations year over year, expats increasingly run the risk of catching the IRS’s eye. The IRS, and the US Department of the Treasury as a whole, have in recent years greatly stepped up enforcement of US income tax compliance for US taxpayers abroad via a US law called the Foreign Account Tax Compliance Act (FATCA), FATCA affects US expats in two ways:
- Expats with foreign financial accounts and assets above a certain threshold amount must report them when they file their federal tax returns, on Form 8938 – Statement of Specified Foreign Financial Assets
- Foreign banks, investment firms and other foreign financial institutions are required to report their US expat account holders, thus allowing the IRS to monitor their foreign financial accounts
The bottom line is that FATCA is making it much easier for the IRS to identify US expats who are not keeping up with filing their US taxes.
I Haven’t Kept Up With Filing My Back Taxes While Abroad – How Many Years Can (or Should) I Be Filing Back Taxes?
Expats who want to catch up on back taxes, but have missed filing returns for more than a year or two, are probably wondering just how many years back they can – or should – be preparing and filing back tax returns?
Generally speaking, the answer is six years – the IRS statutory period of enforcement on delinquent tax return does not extend back further than six years.
However, taxpayers should be aware that per IRS Policy Statement 5-133, enforcement for periods longer or shorter than six years may be used by the IRS, depending on:
- The taxpayer’s prior history of noncompliance.
- The existence of income from illegal sources.
- The effect upon voluntary compliance.
- The anticipated revenue in relation to the time and effort, required to determine tax due.
- Any special circumstances existing in the case of a particular taxpayer, class of taxpayer, or industry, or which may be peculiar to the class of tax involved.
If the IRS determines that a taxpayer filed a false or fraudulent return, the statute of limitations on delinquent returns is not limited to six years, it is unlimited. This is true even if the taxpayer later files an amended return to correct the fraud that was initially reported.
How Many Years Back May I Claim A Refund For A Prior-Year Return?
Expats who anticipate they may get refunds from filing returns for prior years should note that refunds may only be claimed for returns filed within three years of the original due date of the return.
As An Expat Who Hasn’t Kept Up With Back Taxes, Are There Any Other Options Besides Filing Returns Going Back Six Years?
Expats who have missed filing more than a few US tax returns from abroad can simply and voluntarily back file those years to catch up. The good news is that expats who have not filed back taxes for a number of years don’t have to file returns going back six years – the IRS offers an amnesty program called the Streamlined Foreign Offshore Procedures, whereby taxpayers who certify that they have not willfully been out of compliance with their US tax filing requirements can be restored to full compliance via filing their US returns for the past three years, as well as their FBAR reports for the past six years, without being subject to any IRS penalties.
Want to learn more about how to qualify for the IRS’s Streamlined Foreign Offshore Procedures amnesty program? Contact Universal Tax Professionals today, and we will walk you through the steps needed to get back in full compliance with the IRS for your unfiled back taxes.