U.S. Expats May Still Owe Taxes

By Adrienne Mayer, CPA, MST

Many former American citizens who live outside the U.S are not aware that they still may owe U.S. taxes. To remedy this situation and collect back taxes, the IRS released the Relief Procedures for Certain Former Citizens in September 2019. It provides certain expats with relief for back taxes and the chance to comply with their U.S. tax and filing obligations.

No matter where American citizens live, they are liable for paying U.S. taxes. If living and working abroad, these individuals may be eligible for credits on tax payments made to foreign governments, but taxes are still owed to the U.S. government. Even if individuals decide to relinquish their U.S. citizenship, they still may have tax obligations to meet.

There are various reasons why expatriated citizens may be confused about their U.S. tax status and liability. The 14th Amendment to the U.S. Constitution specifies that all individuals born in the U.S. automatically attain U.S. citizenship at birth. This includes those who were born overseas to American parents and continued living abroad, and those born in the U.S. but who have lived elsewhere for most of their lives. These individuals are often considered “accidental Americans” and because they have lived outside the U.S. for all or most of their lives, they are not aware of their U.S. tax obligations.

Others who may qualify are those who have unofficially renounced their citizenship by taking up residency abroad and mistakenly assume they no longer owe taxes. The IRS warns that individuals who relinquish *U.S. citizenship without complying with their U.S. tax obligations may face significant tax consequences.

*The only way to renounce your US citizenship is to file Form 8854, initial and Annual Expatriation Statement, and be in compliance.

New Procedures Ease Compliance

Highlights of the tax compliance program include:

  • Eligible individuals are those who relinquished their U.S. citizenship after March 18, 2010 and have not filed tax returns as a U.S. citizen or resident.
  • The net worth of eligible individuals must be less than $2 million at the time of their expatriation and when making their submission under these procedures.
  • Individuals must file outstanding tax returns with all required schedules and information returns for the year of their expatriation and for the five years preceding it.
  • If the total tax liability for the six-year period does not exceed $25,000, individuals are relieved of paying U.S. taxes.
  • Individuals who qualify for these procedures will not be required to pay penalties and interest.
  • The procedures are available only to those individuals who failed to file tax returns and pay taxes and penalties for the pertinent period due to “non-willful conduct” such as negligence, oversight or a good faith misunderstanding of their U.S. tax obligations.
  • The program is only available to individuals and cannot be used by estates, trusts, partnerships, corporations or other entities.

The IRS notes that these procedures are available for a limited time and it will announce a closing date prior to the end of the grace period. Expatriated individuals are advised to consult with a tax advisor if they are considering using these procedures to comply with their U.S. tax and filing obligations.

If you have any questions on your U.S. tax obligations, please reach out to me at amayer@all-cpas.com or 617-738-5200.

About the Author

Adrienne Mayer, CPA, MST

Adrienne Mayer

Adrienne Mayer, CPA, MST has 20 years of professional experience in public accounting with emphasis on international tax issues and the application of US tax laws on in-patriate and ex-patriate tax filings and compliance. She assists both foreign nationals who are not US citizens, planning to live/work or immigrate to the US (in-patriates) and US citizens or green card holders working and/or living overseas (ex-patriates) with tax compliance challenges and concerns. She also provides tax planning to high net worth individuals and business owners. Adrienne prides herself in helping to reduce clients’ tax liabilities, while making the process as painless as possible

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