As we approach the end of 2016, it’s time to prepare for a new year – and with that comes a new tax year. However, if you still need to get caught up on late US tax before we ring in 2017, there’s still time! Fortunately, the IRS has several amnesty programs to help US expats like yourself get caught up on taxes you may have forgotten about or simply didn’t realize you needed to file. There’s no better time than the present to become compliant with the IRS, so here’s what you should know if you still need to file.
Reasons Why Taxpayers Need to Get Caught Up
While there are numerous reasons people forget to file taxes, your specific reason will make a difference when it comes to the method for getting caught up on late US tax.
1) Failure to file taxes for one or more years
It’s not uncommon for US expats to fall into this category, as living outside of the US means you aren’t reminded about the tax deadline, since you’re likely living on a different schedule in your host country. It’s also fairly common for expats to not realize they even need to file US taxes with the IRS, since they’re living abroad and possibly filing local taxes.
2) Filing a tax return, but forgetting a required form
This is an easy mistake for anyone to make. You may file your taxes on time every year, but if you realize you didn’t include a required form, you’ll need to submit that to the IRS by filing an amended return. Here are a few of the forms US expats may need to file, but may have forgotten to include with their tax return:
Form 5471 – Shareholder in a foreign corporation
Form 8621 – Report by a shareholder of a Passive Foreign Investment Company (PFIC)
Form 8938 – FATCA Form to declare offshore foreign financial accounts and assets
Fortunately, if you fall into either of the above categories, it’s very possible the IRS will waive all penalties if you file your late US Tax Return or file amended returns.
3) Avoiding filing a tax return
Sometimes, however, there are taxpayers who may avoid filing late US tax because they are afraid of opening a can of worms since they’re delinquent in filing. The truth is, you’re always better off getting caught up rather than sweeping your late US tax under the rug – avoiding your taxes can lead to a much more expensive outcome (due to penalties and interest accruing). Furthermore, with FATCA regulations in place, the IRS receives information directly from foreign banks regarding US citizen account holders, so you certainly shouldn’t try to hide your foreign assets, either.
Why You Should Get Caught Up
Arguably the biggest motivation for most to get caught up is to save money. Failing to file US expatriate tax can lead to stiff penalties, even if you don’t owe any tax to the IRS. Certain forms carry even more substantial penalties of at least $10,000 for failure to file – and if you haven’t filed in multiple years, the penalties will multiply!
A relatively new reason you’ll want to get caught up on late US tax is to protect your US passport. As of January 1, 2016, the IRS can have your passport denied or revoked if you owe $50,000 or more in taxes – which can accrue quickly if you haven’t filed your expat taxes. Not having your passport will not only prevent access to and from the US, but you need this vital document for residency and work visas and travel between countries. If you find yourself in a situation with late US tax, you may risk your identity, your finances and more – so getting caught up is critical for you as a US expat.
How to Get Caught Up
Fortunately, the IRS makes it relatively easy for you to get caught up on late US tax by offering several amnesty programs, the Streamlined Filing Procedures and the Offshore Voluntary Disclosure Program (OVDP).
Streamlined Program: This allows taxpayers to file their tax return or amended tax return for delinquent tax years using a special process, eliminating any penalties incurring by filing late US tax. This program also helps you get caught up on delinquent Foreign Bank Account Report (FBAR) filings, which are yearly disclosures of foreign bank accounts when the balance exceeds $10,000 in a calendar year. For Streamlined Filing, you’ll file three years of delinquent tax returns (or amended returns) and six years of delinquent FBAR forms.
Offshore Voluntary Disclosure Program: This program is not as straightforward as the Streamlined Program and carries more risk and penalties. You typically only use this program if the IRS or another agency has discovered your delinquency. If this happens, the OVDP is your only option in order to reduce penalties. The OVDP does carry penalties of up to 50% of the balance of your unreported financial accounts, in addition to significant legal and accounting fees.
As you can imagine, you have a great advantage if you get caught up on late US tax before the IRS realizes your delinquency so you can use the Streamlined Program. In any event, getting caught up on late US tax is so important no matter how you do so – especially before we begin a new tax year!
Ready to Get Caught Up on Your Late US Tax?
Our team of dedicated CPAs and IRS Enrolled Agents has particular expertise in helping US expats get caught up on late US tax using the Streamlined Program – get started with us today!