By David McKeegan
You’ll want to first determine how many years of past due taxes you need to file in order to catch up. The IRS requests that you file for all years in which you’re behind, and provides several ways to do so – including two amnesty programs launched back in 2012, which allows taxpayers to catch up without facing serious penalties.
Streamlined Filing Procedures
• If you haven’t willfully hidden money in offshore accounts (meaning you were unaware of your obligation to file), you can utilize the Streamlined Filing Procedures and avoid penalties.
• To do so, you must submit the past three years of delinquent taxes and past six years of Foreign Bank Account Reports (FBARs) in order to catch up.
• The FBAR requires that you report your foreign bank account(s) that exceed $10,000 at any point in the filing year – whether the total amount was in a single account or spread across multiple accounts.
Offshore Voluntary Disclosure Program
• The Offshore Voluntary Disclosure Program (OVDP) is for taxpayers who willfully hid money in offshore accounts, but offers the ability to avoid criminal charges by letting the taxpayer voluntarily come forward before the IRS finds the delinquency.
• Those using the OVDP will face large penalties, as they typically owe significant amounts of tax – but with the benefit of avoiding criminal charges, this program is the way to go for those in this situation.
Things to Consider When Late Filing
Fortunately, the IRS isn’t quite as harsh as you’d expect when it comes to late taxes. If you’re honest and show that you are making an effort to become compliant on your expat taxes, the IRS will likely take it easy on you.
It’s important to be aware that if you have a balance due on your tax return and you miss the deadline, the IRS can assess the following penalties on your taxes:
• Failure to File: Expats receive an automatic two-month extension until 15 June for filing US taxes, and they can also request an extension until 17 October (for the 2016 filing year). Note that requesting an extension provides an extension of time to file, but NOT an extension of time to pay any taxes owed to the IRS. If you owe taxes, your interest begins accruing from the first tax deadline, 15 April (18 April in 2016). Also, if you don’t request an extension to file by 15 June and don’t file, a late payment penalty of 5% may be assessed each month until the tax is paid.
• Failure to Pay US Tax Penalty: The penalty is 0.5% of your tax due for each full month you haven’t paid the tax – and there is no maximum.
• Assessment of Interest on US Taxes: The rate is based on market activity, and changes every three months. Interest is charged every day that your balance isn’t paid in full – and there is no maximum here, either.
If you have no balance due and will be getting a refund on your US taxes, you don’t need to worry about interest or penalties. You have three years to claim a refund on your US taxes – but if you have a balance due, the IRS can pursue collection for ten years.
If you haven’t filed your US taxes and the IRS receives information about your income, they have the ability to file on your behalf. However, they don’t make an allowance for deductions or exemptions – they simply assess a balance due in order to begin their pursuit of collecting taxes. In this case, filing your taxes as soon as possible is key.
Next Steps To Take
If you missed the tax deadline for the year, you may also simply file your expat tax return late in order to become compliant. The two amnesty programs mentioned above tend to be best for taxpayers who are severely delinquent on multiple years of tax returns. It’s a good idea to consult an expat tax professional to discuss your particular situation and determine the best way to catch up.