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Tax information for Americans living abroad

Dear Member of Democrats Abroad,
 

We know that many of you have expressed considerable concern about two relatively recent developments regarding US taxation issues for Americans living abroad, developments that go beyond the requirement to file annually the IRS tax return (1040 and associated forms): the Report of Foreign Bank and Financial Accounts (FBAR) and the Foreign Account Tax Compliance Act(FATCA).

 

There is in place a DPCA Task Force which has been examining the changes taking place in the US tax system and how those changes impact on those of us living abroad.  The Task Force has been and will continue to be in contact with appropriate senior staff at the IRS, the Department of the Treasury (home to the IRS) and the Senate Budget Committee.  

Events have been moving faster and in a more positive direction than we could have foreseen even two months ago when Democrats Abroad met in Washington.  The developments have been led, in large measure, by the US Ambassador to Canada, David Jacobson, who recently announced that the IRS would be issuing regulations that would appear to reduce, if not eliminate, the fear that many Americans abroad have about tax filing requirements. 

“What the IRS is saying here is that if … you don’t owe taxes to the U.S., and you file your return and they show you don’t owe taxes, there aren’t going to be any penalties for having filed late,” Mr. Jacobson said in an interview with Toronto’s Globe & Mail newspaper.

More than a few US citizens living abroad long ago stopped filing the form 1040, assuming they owed no tax, and had no idea about the requirement to file the Report of Foreign Bank and Financial Accounts (FBAR). This rule—in effect since 1982—requires every American citizen to report all assets held in foreign banks or other financial institutions if, at any time during the year, the sum of those assets exceeded $10,000. Moreover, failure to file this FBAR report is punishable by a fine of up to $10,000—and even more if the failure to file is deemed deliberate. The IRS has rarely imposed these fines in the past but, recently, announced that, after a grace period—which expired last September—it would impose fines going back up to six years on taxpayers not in compliance.

In a recent phone conversation with senior lawyers for the IRS, we learned that, while all US citizens at home and abroad are still required by law to file both their income tax returns (Form 1040 and associated forms) as well as the FBAR, the recently released IRS information sheet may provide some comfort for those of us living abroad who have not complied. To comply with the law, non-filers are advised by the IRS to file six years back for both the income tax reporting and for the FBAR (in the latter case, non-filers are advised to attach a letter explaining why you had not filed earlier.) That information sheet can be found at http://www.irs.gov/newsroom/article/0,,id=250788,00.html and is specifically directed to Americans living abroad (and not just to dual citizens).

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