The IRS Streamlined Procedure offers Americans living abroad the opportunity to get up to date on their required US tax filing before the IRS comes a-knocking! America is the only major country that requires its citizens to file a tax return and pay taxes on their worldwide income even if they live abroad.
File Your US Taxes; Because Thanks to FATCA, IRS Sees All.
There are various exemptions and exceptions that mean most American expats won’t end up having to pay US tax, but these have to be claimed and an annual tax return still has to be filed.
There are an estimated nine million Americans living abroad, including around seventy thousand in Hong Kong. Many may not be aware that they have to file a US tax return to declare their worldwide income each year, however the IRS is probably aware of them, thanks to FATCA.
FATCA is a 2010 law that requires foreign banks and investment firms to report their American account holders under threat of fines if they want to trade in the American financial system at all, which in practice they all do. Over two hundred thousand foreign banks and other financial institutions are now signed up and complying. This means that the IRS knows which Americans have bank or investment accounts abroad, where they live, and how much money is in their accounts. The US also shares tax information with over 100 foreign governments, so the IRS also knows which Americans are paying tax in another country, and how much.
As such, it’s only a matter of time before a letter from the IRS arrives on the doormat of Americans living abroad who aren’t fulfilling their US tax filing obligations. Even if they don’t owe the US any tax because they are eligible to claim one or more exemptions, the penalties for not filing still make it worthwhile for the IRS to pursue non-filing Americans living abroad.
Filing a Foreign Bank Account Report (FBAR)
Alongside the requirement to file an annual form 1040, Americans with over $10,000 (or equivalent in another currency) either in total in one or spread between several foreign accounts at any time during a tax year are required to declare them by filing a Foreign Bank Account Report, or FBAR.
The answer for American expats who aren’t up to date with their US tax filing is the Streamlined Procedure. The Streamlined Procedure is an amnesty program open to US expats who weren’t previously aware that they should be filing a tax return and declaring their worldwide income while living abroad.
Re-launched in 2014 (it was previously only open to anyone who owed less than $1,500 a year in taxes), it is now open to anyone. Since it came into force in June 2014, tens of thousands have filed using the Streamlined Procedure, however there remain millions of US expats all around the world who haven’t.
Even If You File Taxes Abroad, US Expats Are Still Obligated To File Taxes.
The majority aren’t aware that they are required to file, some because they assume that as they live abroad, and possibly pay taxes in another country, they don’t have to (as is the case for nationals of other countries). Others assume that a tax treaty between the US and their country of residence relieve them of the obligation to file. Both of these assumptions are incorrect.
The Streamlined Procedure offers Americans living abroad who weren’t previously aware of their requirement to file a US federal tax return a penalty-free path to compliance, including expats who have never filed their returns and FATCA and FBAR forms before. The Procedure requires that expats file their last three years’ of tax returns, along with their last six years of FBARs, that any taxes owed are paid, and a self-certified declaration confirming that their past non-compliance wasn’t wilful avoidance. And that’s it. No penalties, and no more worries.
With clients in over 150 countries, Bright!Tax is a leading US expat tax services provider for 9 million Americans living abroad. If you have any questions regarding your tax situation, don’t hesitate to get in touch with the CEO and Founder of Bright!Tax’s cloud-based US income tax preparation firm–Gregory Dewald.