What Responsibilities Do We Have as US Citizens Living Outside the Country?

No matter where a US citizen lives or works in the world, they are governed by US Tax law that requires filing a US tax return and a Foreign Bank Account Report (FBAR) each year. This world-wide tax obligation has been around for close to 160 years but many of those impacted by it are unaware of its existence. 

What is a Foreign Bank Account Report?

If you are a United States citizen with a bank account held in a foreign country that you own or have signatory responsibility over, you must file a Foreign Bank Account Report (FBAR).

The report includes the name of the bank, the address, the account number, and the highest balance attained throughout the calendar year. 

This mandate to file such a report applies to any US citizen under these circumstances.  It is important to note that if more than one US citizen has authority over a bank account abroad, each must complete their own FBAR.

What is the Streamlined Procedure?

 If you are a United States citizen residing abroad, you are responsible for filing a US Tax Return annually, even if you do not generate any US income. 

Four years ago, to help US citizens from being fined for failure to submit a Tax Return and an FBAR, the Internal Revenue Services (IRS) launched an amnesty program called “Streamlined Procedure” to give US citizens abroad a way to easily and quickly become compliant without incurring penalties.  

Eventually the amnesty program will end, although no date has been set. To be safe, it is best to comply now before the time limit on the program expires and the IRS sends you a notice and a penalty!

How Do I Comply?

The steps required to participate in the streamlined procedure are straightforward:

1.  Submit three years of delinquent tax returns (ex., 2015, 2016, 2017)

2.  Submit six years of FBARs

3.  Submit a statement of facts to support that not filing was “ non-willful”

Once this has been done, the US citizen is absolved of any penalties and is only required to pay interest on any past due taxes.

Am I a Target?

There are currently 8.9 million US citizens living outside of the country! Remember, any US business owner who either has subsidiaries or US employees abroad is liable for filing an FBAR and a tax return.      

It is critical to note that the law states “any US citizen” living abroad or with a business or bank accounts abroad, is liable. This means that anyone born in the United States must comply. Being declared a legal citizen is the determining factor for filing a tax return and FBAR.

Won’t I Be Paying Tax Twice?

There generally is no double taxation, due to tax treaties with many countries and in almost every instance (close to 90% of the time) the US tax is offset by a credit based on the foreign income tax paid, which brings the amount due on the US tax return to zero.  Some unusual circumstances including tax on capital gains, rental income, stocks, bonds, PFIC’s and dividends, may have an impact, but these are not common occurrences.   

How Will the IRS Find Me?

In 2010 President Obama introduced The Foreign Account Tax Compliance Act (abbreviated FATCA) which requires many financial institutions around the world to provide the US Treasury with the names of all bank customers they believe to be US citizens. By accessing this information, the government is able identify those US citizens who maintain a foreign bank account.

Once the Treasury Department has these names, they can determine who is complying with the US law.  Those individuals or business owners who have not filed an FBAR will be penalized. It is important to note that the FBAR penalty is particularly egregious. In fact, those who do not obey the law can be assessed a penalty that can reach up to 50% of the amount in the foreign bank accounts in question. 

What’s My Next Step?

Understanding the severity of noncompliance, and with the streamline procedure / amnesty program offering a simple solution, it is a good idea to take advantage of the opportunity while it is available.

If you would like to have a confidential conversation regarding filing an FBAR or taking advantage of the Streamline Amnesty Program, please call me at 201-327-0400 or email me at Scott.Shapiro@SobelCoLLC.com.