Can You be Audited Even After You Expatriate?
There are many reasons why a US Taxpayer wants to expatriate from the United States and escape from the US tax system. Oftentimes, a Taxpayer is motivated to expatriate in order to remove themselves from being a US person for tax purposes — so that they are no longer taxed on their worldwide income — or have to report their foreign accounts, assets, or investments on tedious international reporting forms such as the FBAR and Form 8938. When a person formally expatriates from the United States, then unless they have US sourced income (FDAP or ECI) or are a covered expatriate with certain US assets or pension remaining in the United States — they would no longer have a tax nor reporting requirement going forward. But, what happens if the IRS wants to audit the Taxpayer or assess/enforce penalties from prior years — can the U.S. citizen or Long-Term Resident escape US Taxes, Penalties or an audit by simply expatriating?
Tax Audits and Penalties Post-Expatriation
Unfortunately, just expatriating from the United States does not make a person exempt from prior-year audits or penalty enforcement. Stated another way, if an expatriate was out of tax compliance in a prior year and gets hit with an audit or penalty, the mere fact that the taxpayer is no longer a US Person does not prevent the United States from going after them for taxes and penalties for prior years’ noncompliance. Of course, whether the US government will have the ability to enforce these audits and penalties will be impacted in part by whether or not the taxpayer is in a treaty country, still has assets or income in the United States — or is it a country that otherwise cooperates or not (non-extradition countries) with the United States.
In addition, when it is time to expatriate the taxpayer must affirm under penalty of perjury that they have been tax compliant for the past five years — and submit the Form 8854. Making an intentional misrepresentation on that form and willfully making false statements under penalty of perjury can lead to bigger issues and headaches in the future. Taxpayers who may be in this type of situation and considering expatriation may want to speak with a Board-Certified Tax Attorney Specialist first before preparing and submitting any documentation to the IRS for expatriation purposes.
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