I Don't Need To Comply
The following is a hypothetical situation about a U.S. expat living in a foreign country and who does not want to comply with the tax laws.
I no longer live in the United States. Who cares?
As a U.S. citizen you must report your worldwide income. You must pay tax on your taxable income which includes foreign income. There are exclusions on foreign earned income and you may qualify for the Foreign Tax Credit, but in order to claim these tax benefits you must file a tax return.
What happens if I don't file a tax return?
Depending on the type of non-disclsoure the IRS can file a tax return on your behalf and estimate your income and assessed the tax (IRC 6020). In addition penalties will be assessed for not filing the appropriate tax forms such as:
- Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations
- Form 8938, Statement of Specified Foreign Financial Assets
- Form TD F 90-22.1: Report of Foreign Bank and Financial Accounts
Basically the penalty is $10,000 fine for each infraction for not reporting and the penalties can increase depending upon the non-disclosure and if fraud is involved.
See the following IRS link - click here
If I don't report my foreign bank accounts, how would the IRS ever know I had one?
Under FATCA (The Foreign Account Tax Compliance Act) the IRS is targeting U.S. citizens for not reporting their foreign financial accounts and assets. The U.S. government has been entering into intergovernmental agreements with countries throughout the world in which the foreign banks must share this information with the United States. The U.S. government sued UBS for non-compliance and UBS paid $780 million fine and turned over data on an estimated 4,450 customers. Recently, Credit Suisse took a guilty plea and paid a record $2.6 billion fine. Basically the IRS wants to know what assets you have and if you are paying U.S. income tax on those foreign assets.
See the following article - click here
I have a local foreign bank and what possibly can the U.S. government do to the bank if they don't comply?
FATCA imposes a 30% withholding tax on payments of US source income made to non-US financial institutions unless they enter into an agreement with the US Internal Revenue Service (IRS) and disclose information about their US account holders. Therefore, if a wire is being sent to your foreign bank and all wires are routed through the Federal Reserve System then the U.S. government will withhold 30% of the wire to the foreign bank if its deemed US source income.
See the following IRS link - click here
I really don't care if I owe tax and penalties. What can the IRS do to me?
If you have any assets or income in U.S. jurisdiction the IRS can seize those assets and garnish your wages, pensions, and possibly your social security. If you have a financial account in U.S. jurisdiction then the IRS can levy those funds to pay the tax.
I don't have any of the above so I don't care?
Sooner or later, you may have to travel back to the United States. Family emergencies always arise such as funerals, medical care, marriages, or you're just tired of living overseas. According to the Journal of Accountancy (August 2012), taxpayers traveling to the U.S. with unpaid U.S. tax assessments can be detained at the border, questioned, and flagged for follow-up enforcement. If a taxpayer has an unpaid tax liability and is subject to a resulting Notice of Federal Tax Lien, the IRS may submit identifying taxpayer information to the Treasury Enforcement Communications System (TECS), a database maintained by the Department of Homeland Security (DHS).
Furthermore, under a new law just passed on December 4, 2015 (Public Law 114-94) if you owe taxes of $50,000 or more (including interest and penalties) the IRS can have your passport denied or revoked. You can literally be stranded overseas without a valid passport.
How do I get into compliance?
Contact American Tax Group so we can discuss your case.