Catch up on Back Taxes
Are you a US expat who’s gotten behind on your US tax filings? It’s certainly not easy to juggle getting acclimated to a foreign country, culture, language and customs while working and raising a family.
Or, maybe you’ve been diligent getting your US return filed every year, but you didn’t realize that you needed to include certain forms with your filed returns.
While it’s certainly understandable for these situations to happen, you must take action to get back into compliance with the IRS.
Some expats may get paralyzed into inaction by fear of big penalties or audits, but not doing anything about a delinquent tax situation only makes the situation worse and far more costly. Through the FATCA Act, the IRS has uncovered the veil of secrecy that used to shroud foreign banking. There is now much more transparency and many more international agreements worldwide with foreign banks to share US citizens’ account information with the IRS.
Other Filing Requirements for American Expats
Another issue is that expats are unfamiliar with some of the foreign-related required information returns, including:
FBAR (FinCen Form 114)
The Report of Foreign Bank and Financial Accounts, commonly known as FBAR, is a crucial form for US expats holding financial accounts overseas. If the aggregate value of these accounts exceeds $10,000 at any time during the calendar year, US expats must file FBAR. This form is filed separately from the tax return.
The 2023 FBAR is due by April 15, 2024 with an automatic extension available until October 15th, 2024.
Expats should diligently track their foreign bank accounts, investment accounts, and other financial assets to ensure compliance with FBAR requirements. Failure to file FBAR can result in severe penalties, making it imperative for expats to be aware of their reporting obligations.
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Form 5471 - (Information Return of US Persons with Respect to Certain Foreign Corporations)
American expats involved in foreign corporations may be required to file Form 5471. This form is designed to report detailed information about the foreign corporation, including ownership details, financial statements, and other relevant information.
Expats who meet specific ownership thresholds or have certain types of transactions with foreign corporations should carefully review the filing requirements for Form 5471. This form adds complexity to tax filings but is essential for compliance with US tax laws.
Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund)
For US expats who have invested in Passive Foreign Investment Companies (PFICs) or Qualified Electing Funds (QEFs), filing Form 8621 is necessary. This form requires shareholders to report their share of income, gains, losses, and distributions from these investments. Filing Form 8621 ensures that the IRS is informed about the expat’s financial activities and helps determine the appropriate tax treatment of these investments.
Form 8938 (Statement of Specified Foreign Financial Assets)
Form 8938 is required for tax filers with specified foreign financial assets that meet certain thresholds. This form is filed with the together with your Form 1040 and requires detailed reporting of various financial accounts, including bank accounts, securities, and other specified assets.
The Perils and Pitfalls of Failing to Get Caught Up and Compliant
If you are worried about facing stiff penalties and IRS scrutiny by catching up with back tax filings and getting compliant, there is far worse news. If you don’t, it may cost you very, very dearly—and you could even lose your passport!
Most of the information returns listed above carry a minimum penalty of $10,000 per year each for failure to file. That doesn’t even include the penalties accruing on yearly federal income tax liabilities for failure to file and failure to pay, plus interest, from the original due date for each return.
In addition, since 2016, the IRS has coordinated with the US State Department to revoke or deny renewal of US passports carried by non-compliant taxpayers whose tax debt exceeds a certain amount (currently $53,000).
Want to Take the First Step Towards Getting Caught Up and Compliant?
We are here to help! Our team of experienced CPAs and IRS Enrolled Agents will review your situation and determine the best course of action to get your back tax returns filed. We will work to get you fully compliant with the IRS again, including getting you qualified for an IRS tax amnesty program if possible. Contact us today to get started!