Expats’ passports are their lifelines. The freedom to travel without restriction between countries is not a luxury – for many expats, it is the only way to see their families. The loss of a passport could affect their eligibility to work and much more. But recently, the IRS has started cracking down on Americans abroad who are filing taxes late and have “seriously delinquent tax debt“. Find out what you need to know to ensure you are tax compliant and keep your American passport in good standing.
Countless Expats Don’t Realize They Are Tax Noncompliant
When Americans move to other countries, many are not aware that the US tax-filing requirement follows them wherever they may go, for the rest of their lives, unless they renounce their citizenship. Though they may not intend to break the IRS’ rules (or even know they are filing taxes late!), the penalties, interest, and fees can rack up very quickly.
Expats That Are Filing Taxes Late Can Rack Up Penalties Quickly
Even expats who do not owe taxes must still file annually in order to remain compliant. Those who fail to meet these requirements are faced with failure-to-file and failure-to-pay penalties. The failure-to-file penalty adds 5% of your tax bill monthly, not to exceed 25%. The failure-to-pay penalty adds .5% of your tax bill monthly, and cannot exceed 5% of the total tax owed. Filing taxes late can result in a penalty of $135 or 100% of the taxes owed, whichever is smaller.
Foreign Bank Account Reports (FBARs) are also due to the FinCEN (a branch of the Treasury Department) each year. If you have more than $10,000 in all of your bank accounts combined at any point during the tax year, you are required to file FBARs. Not doing so can result in a $10,000 fine per violation. If the IRS has determined that you were willfully hiding money in foreign accounts, the penalty can be $100,000 or 50% of the assets in the account – whichever is greater.
Passport Revocation Threshold for Those Filing Taxes Late
Anyone who owes more than $52,000 to the IRS can have their passport revoked or rendered ineligible for renewal, or may not be able to obtain a new passport. The IRS has notified 400,000 taxpayers with debt that exceeds the $52,000 threshold that their passports are at risk. These notifications detail that they must settle their tax debt within 30 days or they will be at risk to have their passport revoked. The only way to have the passport status renewed is to settle the debt, which can take quite a while when the debt is $52,000 and higher. Or, if they are unable to settle the debt, they can arrange for an installment agreement to make payments. For more details, read the details about IRS payment plans.
Unfortunately, expats are overly impacted by this regulation, since many stateside American taxpayers do not even have passports. The experts here at Greenback recommend you settle the debt by making payments to the IRS and then filing your returns to ensure you aren’t at risk of losing your passport. Remember, your return filing could take longer than 30 days depending on the forms required.
How Expats Can Ensure They Are Tax Compliant
If you’re filing taxes late or at risk of losing your passport due to a tax debt above $52,000, the best course of action is to get caught up as quickly as possible. The Streamlined Filing Procedures are an amnesty program offered by the IRS that allows expats filing taxes late to get caught up without any penalties. To use this program, you must submit:
- Three years of delinquent Federal Tax Returns
- Six years of FBARS (up to five accounts per FBAR form and $50 for each additional five accounts)
However, as the IRS has terminated other amnesty programs recently, the Streamlined Filing Procedures will likely, at some point, be terminated as well.
Get Caught Up On Your Taxes Today
In order to avoid the nightmare that is passport revocation, the safest approach is to get caught up on your taxes today. Get started with Greenback, and we’ll surprise you with just how easy that is.