Born In The U.S., Living Overseas
Daniel was born in the United States and he and his parents moved to the United Kingdom shortly after he was born. With the exception of occasional visits to the U.S., Daniel has spent all of his life overseas. FATCA has never been a concern to him, until now, and he wishes it were not so. Daniel is now 33 years old and has not lived in the land of his birth since his first year. Yet each year that he meets the filing requirements to file a U.S. tax return, he must do so. Often, his tax return is over thirty pages. With FATCA, his return is even longer and takes more time to prepare.
The United States tax system is based on citizenship rather than residence; it is one of only two countries in the world (Eritrea the other… I know you are thinking where is Eritrea…) to tax its citizens on worldwide earnings regardless of where in the world they reside.
Like Daniel, many of the over 7 million U.S. citizens living abroad owe little or no tax. However they are still required to file a U.S. tax return to claim the foreign earned income exclusion, foreign tax credit and other requisite forms that they are eligible to claim that reduces or altogether eliminates their tax liability. For most overseas taxpayers, the complexity involved in preparing a U.S. return is often too risky and complex to rely on self-preparation or do-it-yourself software. The reduced risk and savings in tax liability make professional help from a tax professional well versed in the tax intricacies of overseas Americans well worth the cost of preparation.
FATCA – A Mess Of New Filing Obligations
Filing requirements have only grown more restrictive and the penalties more severe over the years. Of late, this has become more exacerbated by FATCA (Foreign Account Tax Compliance Act), which imposes a plethora of new reporting obligations, particularly on foreign financial institutions that serve Americans.
Designed to catch taxpayers that are dodging their tax obligations and hiding overseas assets, FATCA has made and will make foreign financial institutions disclose these previously undisclosed assets. In turn, taxpayers that haven’t previously come into compliance with their tax filing obligations will be caught in the FATCA cross sights of extraordinarily severe penalties that will leave their foreign financial accounts and assets significantly depleted.
The biggest concern of Daniel and other Americans overseas is of being caught unaware of their filing obligations and failing to comply. For most Americans overseas, interest has focused on the FBAR forms, with which foreign accounts holding more than $10,000 or more in the aggregate (based on the highest balance of each account during the tax year), must be disclosed on the FBAR form. In addition, with FATCA, there is interest in the Form 8938 which has its own set of related but different filing requirements.
Penalties for non-filing in the most severe cases can result in criminal prosecution and penalties of up to 50% of the account balance (yikes!!!). It is of great importance that if you have unfiled returns or late returns or you are unsure of whether you have any filing requirements that you seek professional advice to determine your filing obligations.
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Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on the taxation of US taxpayers. Our services include a free consultation to determine your filing requirements and helping educate you on what FATCA means for you. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate Americans abroad on their tax responsibilities, so that they can look for planning alternatives on time. They are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid. If you found this article helpful, you’ll likely benefit from our future ones as well – so we encourage you to avoid pitfalls and join our mailing list:
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Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.