Many Americans living abroad don’t recognize that their U.S. Citizenship means that they owe a lifelong responsibility to file their taxes annually. Eventually, when you don’t file taxes, the IRS will consider you delinquent. Further, if your tax debt meets or even exceeds a threshold, the IRS can revoke your passport. A passport that has been revoked greatly reduces the amount of places you can travel to. It is important to make sure you are not late on your taxes even as an expatriate.
The U.S. State Department estimates that there are approximately 9 million expats across the world. The likelihood of an expatriate not filing their taxes annually is actually pretty high. Not to worry, the IRS has put in place programs such as the Streamlined Filing Procedure for those that have legitimate reasons for not filing.
How The IRS Tracks You Down
The IRS will typically use the information they already have, such as 1099’s or W-2s, to begin the process to verify. The IRS will use this information to generate a substitute tax return which includes a return estimate. Often times, the IRS won’t have sufficient information to accurately calculate how much is owed. Therefore, the expat receiving the tax return will owe more because deductions, credits or exclusions were not considered in the calculation.
Actions taken by expats with late taxes can alert the IRS and cause them to check to see if they are in right standing.
Such actions include:
- Applying for Social Security benefits
- Receiving Inheritance
- Renewing Passport
- Opening an account with a financial institution abroad that complies with Foreign Account Tax Compliance Act (FATCA) regulations
- Entering the US with a foreign passport that shows that you were born in United States
- Creating a corporation or business oversea where documents specify U.S. citizenship.
These are just few examples of what can leave a trail for the IRS to follow if you are late on your taxes.
What You Can Do If You Are Late
There are several programs you can take advantage of you are behind in filing your taxes. In the beginning of this post, we mentioned Streamlined Filing Procedures. It is important to note that this program is only available if you are not first caught by the IRS. The IRS has programs in place to address delinquent taxes, therefore it is important to take action especially when it is encouraged with amnesty programs.
Here at Americas Tax Firm we are dedicated towards helping you in your tax situation. Seek help today from a licensed professional to guide you through your next tax return.