US Citizens Living outside the
United States – You Must File
United States citizens living abroad generally must file a U.S. income tax return each year, even if they may exclude their income pursuant to the Earned Income Exclusion. In fact, timely filing of tax returns ensures that the benefits of the exclusion may be claimed. If you are a U.S. citizen living abroad and have not filed your U.S. income tax returns, you should file the returns immediately.
Failure to file your income tax returns when due may result in a denial of your passport renewal application, together with other penalties imposed by the Internal Revenue Code.
Foreign tax credits are available to persons who find themselves taxable by more than one country on the same income, in cases where the United States has a treaty with the other taxing country in which you reside. Generally, U.S. citizens living abroad in a treaty country may claim a credit based on the taxes paid to the treaty country on all income except income excluded by the Earned Income Exclusion.
Alternative minimum tax is a tax calculated on income without giving regard to certain preference amounts, including the Earned Income Exclusion. As a result of the workings of AMT, and the limitation of the AMT foreign tax credit to 90% of the tax paid to the treaty country, some tax may be payable by you even if a combination of the Earned Income Exclusion and the foreign tax credit would otherwise result in no tax payable.
What If I Did Not File?
If anyone you know has failed to file tax returns when due, here's important news: IRS wants nonfilers back on the rolls. IRS isn't offering amnesty, but it is leaning toward giving favorable treatment to nonfilers who come forward voluntarily.
Many nonfilers missed filing for several years, especially when living abroad, and are now afraid to re-enter the tax system. But in fact, taxpayers who file overdue returns on their own are often treated reasonably well, much better than those who are caught.
For taxpayers who can't pay their entire tax bill at once, there's an installment payment option. Taxpayers can request an installment agreement for up to $10,000 without filing a financial statement.
If you do not file a tax return, that return year remains open for IRS audit indefinitely, and you may lose the benefits of exemptions and treaty benefits for not filing on a timely basis. Once a return is filed, however, IRS has three years in which to audit it. After that, the return is final. If no return is filed, there's no statute of limitations. IRS can come after the taxpayer at any time, even many years later.
Some nonfilers are actually entitled to refunds. But if they fail to file within three years from the due date of the return, they'll lose the refund.
Our office can help nonfilers to file the necessary returns and take advantage of the available IRS programs. Now's the time to seize this opportunity. IRS may not be in such a charitable mood in the future.
