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Filing Expat Taxes Late

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Question: Are you an American living abroad who is behind on their US taxes? Have you failed to ever file a US tax return even though you are a US citizen?

 A: We understand that it can be stressful to be behind on your US taxes. The announcement of waived penalties for those using the Streamlined Procedures program to “come clean” with the IRS is a huge relief for millions of US expats!

We can help in all aspects of tax compliance and our experts will ensure you have everything you need to come forward as quickly as possible. There has never been a better time to get back on track!

If you are thinking about working with a US expat tax professional but still have a few questions, get all the answers here.


Question: How do the “Streamlined Procedures” work? When does it end?

A: Beginning September 1, 2012, the IRS announced a new initiative specifically for American expats who are behind on their required tax filings. This program allows taxpayers to get caught up by filing only the last three years of delinquent expat tax returns, as well as 6 years of Foreign Bank Account Reporting (FBAR) forms. All forms are filed together along with a “Certification of Non-Willfulness” and sent together to the Department of the Treasury. Taxpayers filing their delinquent returns and forms using the Streamlined Foreign Offshore Compliance Procedures will not be subject to penalties thus enjoy an amnesty for all compliance penalties. If tax is owed on any late-filed returns, the taxpayer must of course pay the taxes as well as interest charges.

You should be aware that the IRS can discontinue this program at any time and they may very well do so in the near future since the tax administrations feels like enough time has passed and enough information has been disseminated that there is no longer a possibility of ignorance of the tax rules for US citizens now that the foreign banks are in charge of collecting information from and informing the IRS about their US citizen clients.You should be aware that the IRS can discontinue this program at any time and they may very well do so in the near future since the tax administrations feels like enough time has passed and enough information has been disseminated that there is no longer a possibility of ignorance of the tax rules for US citizens now that the foreign banks are in charge of collecting information from and informing the IRS about their US citizen clients.



Question: I am a retired U.S. citizen and have decided to remain in a foreign country.  Do I still have to file U.S. tax returns?

A: Yes.  Your filing requirement is the same as that of a retired person living in the US.


Question: I have not filed my US tax return in years; where do I start?

A: You should start by talking with a tax expert to confirm your eligibility to enter the Streamline Procedures. You advisor will identify how many years of back taxes you are going to need to file and what documentation you need in order to complete the necessary reports and returns to become compliant with the US tax authorities.


Question: How many years of late US tax returns do I need to file?

A: Calculating how many years of US expat taxes you need to file depends on your situation. Typically, three to six years will be sufficient for the IRS to consider you are “caught up.”  Streamline Procedures only require 3 years of late returns. If you are trying to sponsor a spouse for US citizenship (immigration), up to eight years may be required in order to prove your ability to support your spouse as a US citizen. If you need to get caught up to prove financial merit, such as a loan application, three years is generally enough. That said, every situation is different; you should discuss your options with a tax professional to make sure you file the correct number of returns.


Question: What documents do I need to have on hand to file my expat tax return?

A: Generally speaking, the most useful documents to have available are US tax returns from previous years and the local income tax returns for your host country. You will need statements of income, capital gains, interest earned, mortgage interest paid or student loan interest paid, your housing expenses, dependents, etc.


Question: What are the penalties for filing late expat tax returns?

A: Prior to September 1, 2012, the IRS assessed penalties on late tax returns, no matter how they were filed. With the changes to the Streamlined Procedures, an IRS amnesty program to help taxpayers get caught up on US taxes, they waived all penalties for expats! If you are behind and need to get caught up, this is the very best way to do so. Apply for the Streamlined Procedures and follow the IRS program requirements carefully. While, previously, many Americans chose to do a “quiet disclosure” (and simply file back returns and hope they don’t get flagged for audit), we highly recommend going through this program and doing things properly – especially because there are no penalties to do so.

Note that FBAR penalties can still be assessed. The US Department of the Treasury reserves the right to seize up to 50% of the undisclosed assets in overseas bank accounts or $100,000 per account, whichever is higher. However, this level of penalty is typically only assessed in cases where people are deliberately hiding assets overseas to avoid taxation. Expats are generally not penalized if they voluntarily come forward.”

There is a new passport revocation law is in place, which allows the government to seize your passport if you owe $51,000 or more in back taxes. This means it’s more important than ever to keep accurate records and stay on top of your expat taxes, in order to prevent a situation like this from occurring.


Question: Is e-filing available for late expatriate tax return filers?

A: E-filing is available if you are filing 2015 and 2016 late tax returns, as long as you aren’t filing under the Streamlined Procedure. If filing Streamlined, you will need to mail paper copies of the returns to the IRS.


Question: What is the Offshore Voluntary Disclosure Program? When does it end?

A: The current Offshore Voluntary Disclosure Program (“OVDP”) does not have a scheduled end date. This program was started in 2012, and the IRS has announced that it can close the program at any time. The IRS also launched a new set of programs, specifically designed for the unintentionally behind, known as the Streamlined Filing Compliance Procedures. While the OVDP is geared towards protecting individuals who have been intentionally avoiding taxes by hiding money overseas from criminal prosecution, the Streamlined Filing Compliance Procedures are designed for Americans who have unintentionally not been filing their taxes or reporting their foreign bank accounts. If you are behind on your taxes, you should consult with a tax expert to determine the best way to become compliant.


Question: Do I need to file any additional forms such as the Foreign Bank Account Reporting (FBAR)?

A: The Foreign Bank Account Reporting (FBAR), officially known as FinCen Report 114, will need to be filed electronically for any year that a taxpayer had financial interest in or signature authority over accounts that totaled more than $10,000 at any given time during a calendar year. This is an aggregate amount of all your accounts; for example, if you had $4,000 in one account and $7,000 in another, you would need to file FBAR. The US Department of the Treasury can impose significant penalties for failing to file, including the seizure of assets. If you are behind on filing FBAR, we recommend you get caught up as soon as possible.


Question: I neglected to report my worldwide income on previous expatriate tax returns. What can I do?

A: In the event that you have incorrectly reported information on prior years’ tax returns, you should file an amended tax.  Depending on the situation, you may not owe any additional taxes after the credits and deductions applicable to expatriates have been applied to your return.


Question: I have not heard from the IRS; should I bother filing an expatriate tax return?

A: We have many clients who feel that they are under the radar when it comes to filing US expat taxes and other reports that are due to US authorities. While this may be the case, in the event you are caught by the IRS or the US Department of the Treasury (even if you are a “small fish”), the penalties could be exercised to the maximum amount, including steep financial burdens and potential jail time. Fortunately, the IRS seems to be more lenient toward those who come forward voluntarily but punish the people they catch. As a result, we strongly recommend any late filer become compliant with all US authorities as soon as possible.


Smith Carmichael & Associés Paris

Take Advantage of Voluntary Disclosure Programs

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With more than 54,000 taxpayers coming in to participate in offshore disclosure programs since 2009, the Internal Revenue Service reminds U.S. taxpayers with undisclosed offshore accounts that they should strongly consider existing paths established to come into full compliance with their federal tax obligations.
Both the Offshore Voluntary Disclosure Program (OVDP) and the streamlined procedures enable taxpayers to correct prior omissions and meet their federal tax obligations while mitigating the potential penalties of continued non-compliance. There are also separate procedures for those who have paid their income taxes but omitted certain other information returns.

“The groundbreaking effort around automatic reporting of foreign accounts has given us a much stronger hand in fighting tax evasion,” said IRS Commissioner John Koskinen. “People with undisclosed foreign accounts should carefully consider their options and use available avenues, including the offshore program and streamlined procedures, to come back into full compliance with their tax obligations.”
Under the Foreign Account Tax Compliance Act (FATCA) and the network of intergovernmental agreements (IGAs ) between the U.S. and partner jurisdictions, automatic third-party account reporting began this year, making it less likely that offshore financial accounts will go unnoticed by the IRS.

In addition to FATCA and reporting through IGAs, the Department of Justice's Swiss Bank Program continues to reach non-prosecution agreements with Swiss financial institutions that facilitated past non-compliance. As part of these agreements, banks provide information on potential non-compliance by U.S. taxpayers. Potential civil penalties increase substantially if U.S. taxpayers associated with participating banks wait to apply to OVDP to resolve their tax obligations.
OVDP offers taxpayers with undisclosed income from offshore accounts an opportunity to get current with their tax returns and information reporting obligations. The program encourages taxpayers to voluntarily disclose foreign accounts now rather than risk detection by the IRS at a later date and face more severe penalties and possible criminal prosecution.

Since OVDP began in 2009, there have been more than 54,000 disclosures. The IRS has collected more than $8 billion from this initiative.
The Streamlined Procedures, initiated in 2012, were developed to accommodate a wider group of U.S. taxpayers who have unreported foreign financial accounts but whose circumstances substantially differed from those taxpayers for whom the OVDP requirements were designed. More than 30,000 taxpayers have used streamlined procedures to come back into compliance with U.S. tax laws. Two-thirds of these have used the procedures since the IRS expanded the eligibility criteria in June 2014.

Separately, based on information obtained from investigations and under the terms of settlements with foreign financial institutions, the IRS has conducted thousands of offshore-related civil audits that have produced tens of millions of dollars. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.
The IRS remains committed to stopping offshore tax evasion wherever it occurs. Even though the IRS has faced several years of budget reductions, the agency continues to pursue cases in all parts of the world.

If you would like additional information regarding the OVDP, please call our office. We are here to assist you.


Smith Carmichael specializing in US. taxation in Paris

IRS Offshore Compliance Programs

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The IRS has two offshore voluntary compliance programs; namely, the Streamlined Filing Compliance Process and the Offshore Voluntary Disclosure Program (OVDP). These programs are part of a wider effort to stop offshore tax evasion, which includes enhanced enforcement, criminal prosecutions, and implementation of third-party reporting via the Foreign Account Tax Compliance Act (FATCA). The changes provide new options to help both taxpayers residing overseas and those residing in the United States come into compliance with their U.S. tax obligations.

Streamlined Filing Compliance Process

The streamlined filing compliance process, often referred to as the “streamlined procedures,” are aimed at U.S. taxpayers who have failed to disclose their foreign accounts but are not willfully evading their tax obligations.
The streamlined procedures announced in 2012 were offered only to nonresident non-filers. They also subjected taxpayer submissions to different degrees of review based on the amount of tax due and the outcome of a risk questionnaire they were required to complete.
The modifications to the streamlined procedures accommodate a wider group of U.S. taxpayers with unreported foreign financial accounts. For the first time, certain U.S. taxpayers residing in the United States may qualify for the program. In addition, the risk questionnaire and the requirement that the taxpayer have $1,500 or less unpaid tax per year have been eliminated. In their place, the taxpayer must certify that any previous failures to comply were due to non-willful conduct.

The program waives all penalties for eligible U.S. taxpayers residing outside the United States. However, U.S. taxpayers residing in the United States must pay a miscellaneous offshore penalty equal to 5 percent of the foreign financial assets that gave rise to the tax compliance issue.

Offshore Voluntary Disclosure Program (OVDP)

Historically, the Offshore Voluntary Disclosure Program (OVDP) has helped individuals avoid criminal prosecution if they disclose their foreign accounts and pay a substantial penalty. Overall, previous versions of the OVDP have resulted in more than 45,000 voluntary disclosures from individuals who have paid about $6.5 billion in back taxes, interest and penalties.

The latest initiative makes the following important modifications to the OVDP:

•    additional information is required from applicants;
•    the reduced penalty percentage for certain non-willful taxpayers is eliminated due to the expansion of the streamlined procedures;
•    all account statements must be submitted, and the offshore penalty paid, at the time of application;
•    the penalty percentage is increased (from 27.5% to 50%) if it becomes public that a financial institution where the taxpayer holds an account, or another party facilitating the taxpayer’s offshore arrangement, is under investigation by the IRS or Department of Justice before the taxpayer’s OVDP pre-clearance request is submitted; and
•    the voluminous records required for an OVDP filing may be submitted electronically rather than on paper.

The OVDP can be a significant benefit to affected taxpayers, as penalties outside the program can be onerous. In addition to the penalties below, criminal penalties may also apply.

•    For a non-willful failure to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), there is a penalty of up to $10,000.  If the failure to file is willful, the penalty is up to the greater of $100,000 or 50% of account balances.
•    For a failure to disclose foreign financial assets on Form 8938, Statement of Specified Foreign Financial Assets, the penalty is up to $10,000. However, the penalty increases an additional $10,000 for each 30 days of non-filing after an IRS notice of a failure to disclose is issued, up to a maximum of $60,000.
As you can imagine, these offshore account filings can be quite complex.  If you are interested in pursuing one of these programs, please call our office at your earliest convenience.


Smith Carmichael specializing in US. taxation in Paris

How Can a U.S. Citizen File Jointly With a ''Nonresident Alien'' Spouse ?

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Generally, a joint return cannot be filed if one spouse is a nonresident alien at any time during the tax year. However, if one spouse is a citizen or resident of the United States, both spouses may file an election to treat the nonresident alien spouse as if he or she were a resident of the United States for the entire tax year, thereby permitting them to file a joint return.

A married couple usually benefits from filing jointly because a joint return, as compared with two separate returns, evenly splits their income, thereby possibly reducing the highest marginal tax rate to which it is subject. If you and your spouse decide to make the election, you must attach a statement to your tax return, which you both sign. The election, once made, applies to all subsequent years until terminated by revocation, death, separation or divorce, or termination by the IRS for failure to keep adequate records. Once the election is terminated, it may not be made again by the couple.

If you make the election, you and your spouse will be subject to tax on your worldwide income, whereas nonresident aliens generally are subject to U.S. income taxation only if they have U.S. source income or income that is effectively connected with the conduct of a trade or business within the United States.

The decision to make the election, therefore, depends on the income each of you makes, and the sources from which it originates. Please call if we can be of assistance in helping you determine if this election would be right for your situation.

Smith Carmichael specializing in US. taxation in Paris



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