The news about US passports being revoked for carrying late US tax debt is finally coming to fruition, it seems. A little over a year ago, this unprecedented bill became law, allowing the US State Department to revoke the passport of any US citizen who owes more than $50,000 to the IRS. However, as we reported earlier in 2016, the law had yet to be enforced – but the latest news coming from the IRS states the process will begin in early 2017. Read on for more details.
Who Does the Law Affect?
While this law (click here to read more about it) has the potential to affect any American carrying a heavy late US tax debt, expats are in a particularly risky position, as penalties and interest on non-filing or delinquent filing of certain tax forms can quickly add up. $50,000 may seem quite steep, but FATCA Form 8938, a common filing requirement for Americans abroad with assets overseas, incurs a penalty of $10,000 for failing to file and increases for continued failure to file. There are so many intricacies of US expat taxes that it’s more likely to forget a particular form or incorrectly file a form.
The Process for Revoking Passports
When a taxpayer’s late US tax debt surpasses $50,000 and is ‘seriously delinquent,’ the IRS will issue a certification notice to the State Department. You’ll be notified at this point, and the State Department will give you 90 days to resolve erroneous certification issues, make full payment of the debt or enter into a satisfactory payment alternative with the IRS. Other than this time frame, there is no grace period before your passport is revoked. Once the decision to revoke your passport is made, the department may limit the passport only to return travel to the US.
The Negative Effect on US Expats
In all instances, having your passport revoked for a late US tax burden is a negative situation. However, it’s particularly complicated for US expats, since your passport is the key to your identity while living abroad. Your passport is integral for all international and domestic travel, work and residency visas, banking transactions and much more. It’s not just about travel – it could also mean the loss of your job and home!
Fortunately, a majority of US expats don’t end up owing money on their tax returns due to the Foreign Earned Income Exclusion, Foreign Tax Credit and some tax treaty provisions. Although this is true, there are still a number of penalties and interest that come from failing to file your tax returns or filing incorrect forms – and these penalties can add up quickly. It’s very important to file your tax returns in a timely manner and report your income and assets accurately on the appropriate forms. To learn more about filing your expat tax return and ways to save on your taxes, download a US expat tax guide.
Don’t Let This Happen to You
With the revocation process set to begin in early 2017, it’s more important than ever to become and stay compliant with your tax obligations. If you know you have late US tax, but aren’t sure how much you owe, now is a good time to determine your debt so you can begin paying it off. Depending on your situation, you may qualify for the Streamlined Filing Procedures as a way to get caught up without incurring large penalties. Otherwise, the Offshore Voluntary Disclosure Program might be the way to go. Either way, making a conscious effort to get caught up right away can protect you from serious delinquencies – or worse, losing your passport.
Ready to Get Caught Up On Your Late US Tax?
Our expat-expert CPAs and IRS Enrolled Agents have particular expertise in helping US expats get caught up on delinquent taxes using the Streamlined Filing Procedures. Get started with us today and become compliant on your US expat tax obligation!