- 1 Expat Tax Lawyers
- 2 EXPATS & FATCA
- 3 Why are U.S. Expats Required to File Tax Returns
- 3.1 Why are U.S. Expats Required to Report Foreign Accounts?
- 3.2 FATCA is being interpreted unfairly and impacting U.S. Expats
- 3.3 What if the U.S. Expat Does not Disclose the Information
- 3.4 What forms are U.S. Expats required to file?
- 3.5 What can the IRS do to a U.S. Expat who lives in a Foreign Country?
- 3.6 But I haven’t filed Tax Returns in many years, What can I do?
- 4 A List of of the most Common EXPAT FAQs
Los Angeles Expat Attorneys: The nationally recognized international tax lawyers of Golding & Golding represent U.S. Citizens, Expats, Foreign Nationals, Legal Permanent Residents (“Green Card Holders”), Businesses, Trusts and Estates throughout Los Angeles, including Beverly Hills, Century City, West Los Angeles, Manhattan Beach, Malibu, Santa Monica, Pasadena, Calabasas, and Sherman Oaks with Expat Tax related issues.
Expat Tax Lawyers
Ever since the international tax law, FATCA (Foreign Account Tax Compliance Act) was introduced, foreign tax law compliance has become much more complicated. More and more, Expats are finding themselves under the watchful eye of the IRS and Department of Treasury.
Retaining an Expat Tax Lawyer to resolve IRS Tax issues can help get you, your family and your business back into compliance.
Prior to the introduction of FATCA, international tax law compliance was relatively easy, if non-existent. U.S. citizens could simply pack up and move overseas without much hassle. Moreover, the “Expatriation Tax” was much simpler as well and easy to circumvent – with a much less strict definition of “covered expatriate”
Then came 9/11 followed by FATCA, as well as GATCA/CRS (Common Reporting Standard) and the IRS Threats of revoking passports for U.S. Taxpayers with more than $50,000 in tax debt, which has made the transition to Expat a lot more murky and dangerous.
EXPATS & FATCA
When it comes to U.S. Expats, the biggest change in international law is in the form of FATCA (Foreign Account Tax Compliance Act). Under FATCA, U.S. Taxpayers (Expats, US citizens, Legal Permanent Residents, and Foreign Nationals subject to US tax) are required to annually report their overseas and foreign accounts to the Internal Revenue Service and Department of Treasury; the failure to do so can be very costly, with FBAR penalties alone reaching 100% of the account value.
Why are U.S. Expats Required to File Tax Returns
The requirement to file U.S. tax returns (unless a person is otherwise exempted or excluded) is a requirements that comes along with being a US citizen and/or legal permanent resident. Under U.S. tax law, the United States taxes U.S. taxpayers on their worldwide income. That means that even if you are a U.S. Expat and earn the money anywhere in the world outside of the United States – whether it be in Singapore, Nicaragua or the middle of Africa – you are required to file a tax return, report the income and usually pay tax on the money (Unless the Foreign Tax Credit or Foreign Earned Income Exclusion applies).
Why are U.S. Expats Required to Report Foreign Accounts?
While many people who oppose FATCA have a many different reasons as to why FATCA is unfair, for the most part the law itself is not unfair – the real problem is how foreign financial institutions and other foreign banks are interpreting and applying the law.
One of the main reasons why US expats are required to disclose their foreign accounts is so that the United States can track the value of their foreign accounts for estate planning/estate tax and gift tax purposes. For example, in the United States the gift and estate tax exemption is $5.45 million per person. For purposes of this example, let’s assume that the person is single. With this exemption it means the person was to pass-on in 2016 (absent complicated gift tax and claw-back rule) and he was worth $5 million, then there would be no estate taxes due.
On the other hand, let’s is the same facts only the person is worth $10 million. Now, that person’s estate may have to pay estate tax at the rate of 40% for every dollar over $5.43 Million. In other words, the state would have to pay roughly $1.85 million estate tax. Now, if the person who is a US citizen but is also US expat lives overseas and has their money in a foreign account with a foreign beneficiary that the IRS cannot trace or locate, the IRS cannot collect that nearly $2 million in tax money. As a result, by requiring all US taxpayers to report and disclose their foreign offshore accounts, the IRS can track each person’s value.
FATCA is being interpreted unfairly and impacting U.S. Expats
Although the purpose behind FATCA may be legitimate, the law itself is being interpreted poorly by foreign countries which is having a severely negative impact on US Expats. Many foreign countries do not want to deal with a headache of reporting US taxpayer accounts to the United States and instead are either refusing to open new accounts or actually closing or downgrading US expat accounts.
**If you are US expat residing overseas and are unable to open a bank account this can be a very difficult if not impossible situation.
While this is not the intent of FATCA, it is the direct result of poor planning on behalf of the United States.
What if the U.S. Expat Does not Disclose the Information
If a U.S. Expat fails to disclose their foreign account information to the United States, then they may suffer significant fines and penalties if not forfeiture of their money. The penalties involved with the failure to disclose international and foreign money is archaic and completely unfair to the taxpayer.
What forms are U.S. Expats required to file?
The number of forms that are required to be filed will depend on the amount of offshore assets, and whether the taxpayer is married filing jointly or not. Here’s a brief list of some of the more common forms that are required to be filed by U.S. Taxpayers, including U.S. Expats:
- FBAR (FInCEN 114): This form is required to be filed with the Department of Treasury if the total aggregate total of your overseas accounts exceed $10,000 in them or more on any given day (if you have 11 accounts with $1000 each of them you still have to report all the accounts). This form is not filed with your tax return but rather is filed directly with the Department of Treasury and is now required to be filed online. This form cannot be filed late otherwise it is considered a silent disclosure and could lead to potential fines and even criminal penalties.
- IRS Form 8938: This form is filed with your tax returns, and the thresholds for filing them depends on whether you are single or married, and if you reside in the U.S. or overseas. The minimum threshold is that if you have $50,000 or more in foreign accounts on the last day of the year or $75,000 in the account at any time during the year then you are required to file this form.
- Schedule B: Schedule B is generally filed when you earn a certain amount of dividends or interest income during the year (U.S. or Foreign Interest/Dividend income). It is important to note that if you have any interest in a foreign account then you are still required to file the form even if you did not earn any interest or dividends another job.
***If you filed a Schedule B but did not disclose your foreign accounts in accordance with question 7, you should speak with an international tax attorney to discuss the implications.
- IRS Form 3520: this form is required to be filed depending on whether you have an overseas trust or receive gifts that meet or exceed the threshold amount.
What can the IRS do to a U.S. Expat who lives in a Foreign Country?
If you are a U.S. Expat who lives in a foreign country and the IRS finds that you were required to, but did not file you U.S. tax returns, they will seek to put a lien or levy – or worse – against both your United States and foreign bank accounts and property. The reason they will be able to do this is because many countries have entered into intergovernmental agreements (IGAs) with the United States, which are reciprocal arrangements by the countries to report and take any means necessary in order to ensure all taxes are paid.
Further, in countries that do not have an intergovernmental agreement (IGA) with the IRS, if your bank account in this country is either a US bank, a bank that has US branches, or a foreign bank that uses a third-party US-bank such as HSBC to transfer funds to different countries, U.S. Expats will most likely get caught in the web as well.
But I haven’t filed Tax Returns in many years, What can I do?
While it is a serious matter to make sure all U.S. Expats file their U.S. taxes, the IRS and Department of Treasury understand that when you reside in a foreign country it might not be your top priority, or you may not even have known you were required to file. The lack of filing may very well be that you were unaware of the requirement to report your foreign income and assets.
As such, the IRS has developed and implemented several programs to assist U.S. Expats who are US citizens or Legal Permanent Residents of the United States who reside overseas with tools to allow them to file their tax returns late. Depending on the facts and circumstances of each case, along with the reasons for failing to file, there may or may not be penalties for failing to file the tax returns . Moreover, even if there are penalties oftentimes an experienced international tax Lawyer can get them waived.
In other words, it’s never too late to get complaint!
We are experienced in representing U.S. Expats and Government Contractors overseas with a diverse range of complex legal issues, including:
- Foreign Earned Income Exclusion (FEIE)
- Physical Presence Test/Bona-Fide Resident Test
- Report of Foreign Bank and Financial Accounts (FBARs)
- Foreign Account Tax Compliance Act (FATCA)
- Offshore Disclosure/Streamlined Submissions (OVDP)
- Overseas and Foreign Tax Issues
- IRS Bank Levies
- Withdrawal of Federal Tax Liens
- Collection Due Process Hearings (CDP)
- Collection Appeal Program (CAP)
- Criminal and White Collar Defense
- Filing Delinquent U.S. Tax Returns, and
- Defending IRS Audits, IRS Appeals, and U.S. Tax Court.
There are different rules and regulations that dictate foreign earned income, foreign company business income, foreign tax credits, and much more.
We represent Expats, Government Contractors, Foreign Citizens, and Military clients Worldwide:
- Cayman Islands
- Fiji Island
- Hong Kong
- New Zealand
- Puerto Rico
- South Africa
- The Bahamas
- United Arab Emirates
A List of of the most Common EXPAT FAQs
- How do Expats Qualify for the FTC (Foreign Tax Credit)?