How the IRS Can Find You if Your Taxes Are Delinquent

How the IRS Can Find You if Your Taxes Are Delinquent
January 6, 2020

If you’re an American living abroad who hasn’t filed taxes since you relocated, you may be surprised to hear that you are considered by the IRS to be delinquent regarding your tax-filing obligations. Many Americans don’t realize that their citizenship means a lifelong tax-filing requirement to the US government, regardless of their location. Worse yet, if your tax debt reaches certain thresholds, the IRS can have your passport revoked. So, how do expats with late taxes get caught by the IRS? Let’s find out.

How Does the IRS Find Expats With Late Taxes?

When people don’t timely file tax returns, the IRS can sometimes begin the process by collecting the information they have – like 1099s or W-2s – and compiling a substitute tax return to estimate a collection amount. But when the IRS does this, they don’t have the information to add in any deductions, credits, or exclusions that would limit the tax liability, so the person on the receiving end of this substitute tax return is going to end up paying a whole lot more.

This process is a bit trickier when the taxpayer lives in a different country. But, many actions taken by expats with late taxes will raise the eyebrow of the collective IRS and make them check your tax standing, such as the following:

  • Applying for Social Security or pension benefits
  • Receiving an inheritance
  • Renewing your passport
  • Opening an account with a financial institution abroad which reports your finances to the US in order to comply with FATCA regulations
  • Registering the overseas birth of your child with the US embassy
  • Submitting information to a US university (for example, your kids applying to a college where your financial records are necessary to the process)
  • Someone else using an amnesty program could be asked about your financial information, and if they provide it, you will be flagged
  • Entering the US with a foreign passport that specifies you were born in the US
  • Forming an overseas corporation where your financial documents show your US citizenship

Other situations may also cause the IRS to seek out your finances overseas and bring you into compliance. Essentially, anything you do that leaves a paper trail for the IRS could be used to discover your noncompliant tax status.

The IRS Is Cracking Down.

This past summer, the IRS enacted new compliance programs, most of which are seeking expats who have not complied with their filing requirements. More resources are now being allocated specifically to addressing expat noncompliance in the following areas:

  • S Corporations Built In Gains Tax
  • Post-OVDP Compliance
  • Expatriation
  • High Income Non-Filer
  • US Territories – Erroneous Refundable Credits
  • Section 457A Deferred Compensation Attributable to Services Performed Before January 1, 2009

What Should Expats With Late Taxes Do?

Amnesty programs are still available for those who are late with their expat taxes. However, the IRS-initiated amnesty programs are temporary, and they can only be used by taxpayers who were not first caught by the IRS. They exist to encourage folks to voluntarily come forward rather than wait for the IRS to find them. So taking action before the IRS finds you is the best course of action for all Americans abroad, since some of the amnesty programs allow you to get caught up penalty-free.

Get Caught Up Today!

Greenback specializes in expat taxes and can help you get caught up, minus all the stress. Get started with us today.

Who doesn’t love a tax break? Use our handy calculator to learn what you can save using the FEIE.

Use our simple excel calculator to get an estimate of how the foreign earned income exclusion will save you money. It will make your day!

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