As a US citizen or green card holder you are required by the US government to continue to file a US tax return, even if you are living, working and paying taxes abroad. This has been the law since about 1914, but it is only in the past few years that the IRS has started cracking down on Americans living abroad who have not been filing their tax returns.
The US government thinks that there is about $ 700 billion dollars of tax revenue that it is missing out on due to individuals and businesses failing to properly report their US taxes and hiding money in foreign bank accounts. The IRS is actively looking for individuals with over $ 50,000 held outside the US and is finding and prosecuting these individuals. In an effort to encourage US citizens living abroad to “catch up” on their taxes and to properly report their foreign bank accounts the IRS recently announced its Second Voluntary Disclosure Initiative. This is good news for anyone who has not been filing their taxes, reporting their bank accounts or both.
The first Voluntary Disclosure Program ended in 2009 and since then people who did not disclose their overseas bank accounts and other liquid assets were in a state of limbo as there was no official policy for how they would be dealt with (i.e. fines, criminal prosecution or both). The new initiative clearly defines the penalties and the requirements for properly disclosing your foreign accounts and catching up on your tax filings. The 2011 Offshore Voluntary Disclosure Initiative is the best opportunity since 2009 for people to catch up on their taxes and once again become compliant with the IRS. The penalties are higher than in 2009, but the IRS policy is not to reward people for not reporting and the IRS has stated that penalties will only increase in the future. This means that now is the time to catch up on your US taxes and report all of your foreign bank accounts.
In order to take advantage of the Voluntary Disclosure Initiative you will need to completely catch up by August 31st 2011 so you should contact your tax advisor immediately to get started. The terms will require you to file for up to 8 years and to disclose your foreign bank, brokerage and savings accounts and the balances for up to 8 years. You will also need to pay any late taxes, penalties and fines by August 31st 2011.
Finally, some key dates you should be aware of:
Whether you have been filing your taxes each year or iyou have recently moved abroad, you should be aware of the important tax dates for 2011 (the 2010 US tax year). They are:
- April 18th - US Federal Tax deadline, also the date any taxes need to be paid by in order to avoid penalties
- Deadline for State Taxes varies state by state (some have also extended to April 18th, some keeping to April 15th deadline)
- June 15th - Tax deadline for US Expats – expats receive an automatic 2 month extension (please note: if you owe money, interest accrues as of April 18th)
- June 30th - Deadline for the Foreign Bank Account Report form reporting foreign accounts - there is no extension for this
- August 31st- Deadline for 2011 Offshore Voluntary Disclosure Initiative
- Oct 15th - final tax deadline if you have filed for an extension before June 15th
The US tax code can be very confusing and is quite complex so we strongly recommend speaking to a US expat tax expert before getting started. This will greatly improve your chances of avoiding double taxation and getting hit with a large US tax bill.
All information was correct at the time this article was written (February 2011).
Author: David McKeegan, Director and Founder of Greenback Expat Tax Services, a US Income Tax provider that specializes in tax preparation for Americans who live abroad