If you are a US citizen living abroad and have not been reporting your US taxes when you should – the IRS has a label for that. It’s called delinquent, and it regards your tax-filing obligations. Delinquent means you failed to do your duty or are tending to commit a crime. In the case of expat taxes, the IRS will see your tax status as delinquent if you skip tax filing and paying due any taxes.
However, it is possible many Americans didn’t know about tax reporting while living overseas, despite it being outlined in US passports. Yet the consequences and tax penalties can be daunting if you get in trouble with the IRS. We’re going to share information and solutions on how to not get in trouble with the IRS.
How the IRS Finds You
If you don’t file your US taxes on time, the IRS can start a process where they collect old tax information they have of you. Think of past tax returns and W-2s from the States.
Then they create a substitute tax return and approximate how much tax money you need to file and/or owe. They exclude adding info on tax credits, deductions, and exclusions. This means that the IRS could make you pay more than you should.
Plus, while you were living abroad and skipped out on reporting your worldwide income, the following activities you participate in can trigger suspicion and make the IRS check your tax status:
- Renewing your US passport
- Applying for Social Security benefits
- Opening a foreign bank account that complies with FATCA regulations
- Registering the birth of your child at a US Embassy overseas
- Forming an overseas business or cooperation which identifies your American citizenship
- You get married, divorced, or are on public record abroad.
- …and more
Being Tracked by the IRS as a US Citizen Abroad
When you start leaving a paper trail of documents and signatures abroad, the IRS can track you. Then they will contact you to become tax compliant. This is especially true because many foreign countries are sharing information about their US citizens with the IRS.
The internet is also making it easier for the IRS to find people who are not complying with US tax laws. In our recent post, we described how the IRS is obtaining better technology and algorithms through artificial intelligence to track Americans who are not reporting.
IRS Compliance Measures
In July of 2019, the IRS rolled out a new series of compliance measures that include US expats abroad. One of their compliance campaigns called ‘’Expatriation.’’ It involves Americans abroad who moved abroad after July 17, 2008, and that they must file and pay their US taxes every year. Otherwise, if they don’t, the IRS will send them letters or visit them in extreme cases.
The other compliance campaigns by the IRS that effect US expats are:
- High-Income Non-filer: For US expats with high income who have not filed tax returns. They will go through an examination treatment stream concentrates on bringing them into compliance.
- S Corporations Built-in Gains Tax: For US expat entrepreneurs, a built-in gains tax (BIG) will occur. They are unrealized built-in gains when a C Corporation transitions into an S Corporation.
- US Territories: Erroneous Refundable Credits: For expats living in US territories (such as the Virgin Islands). There will be examinations regarding those who are wrongfully claiming tax credits on their tax return.
- Post OVDP: A campaign targeted to expats, that addresses tax non-compliance towards asset reporting and foreign income requirements.
- Section 457A Deferred Compensation Attributable to Services Performed before January 1, 2009: The IRS will seek out US expats who received deferred compensation and are not compliant with IRS Section 457A through issue-based examinations.
It’s a lot to know about. We at MyExpatTaxes suggest you depend on us to help make up for the years of unfiled taxes. You can do this as soon as possible through our friendly DIY expat tax software.
We include all the necessary forms. Plus Form 8854, the Initial and Annual Expatriation Statement, so you as an expat who recently gave up citizenship or tax residency can make sure you exit properly.
We’d hate to see you have to pay fines of $10,000 or more. Which is why you can reach out to us to start your process of getting tax compliant.
Three Tips on How to Not Get in Trouble with the IRS
Here’s a general break of three ways to not get in trouble with the IRS:
- File your tax return every year, if you meet the filing thresholds
- Use the Streamlined Procedure if you forgot or haven’t filed in many years (see more info below)
- Reach out to the MyExpatTaxes team with your tax questions and concerns – we’ll handle the rest
- Continue to stay tax compliant every year through using MyExpatTaxes’ affordable plans
The Streamlined Procedure for Catching Up
The IRS tax amnesty program, such as the Streamlined Procedure, allows expats to make up for unfiled tax returns. This works only for individuals who have not been caught nor contacted by the IRS yet. This procedure program encourages taxpayers to come forward, make up for lost years without penalties or consequences.
We have one of the most affordable and easy Streamlined Procedure programs in the tax industry. It’s one third the price, and fast included with the right tax support you need. To learn more about our Streamlined Procedure program, please see this post here.
Generally, though, we suggest you take an hour every year to walk through our software and do your US tax duty as an American expat. Our user-friendly software and the team of tax professionals can lead you every step of the way. Furthermore, we provide discounts to our regular customers and a referral program where you can save even more money.
We hope this information helped you understand how to not get in trouble with the IRS.