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The American

Get Filing The US tax deadline looms - Michael Burland sat down with tax expert Roland Sabates, Senior Manager at H&R Block U.S. Expat Tax Services, to find out what we should do

F

oreign Account Tax Compliance Act (FATCA) legislation has heightened awareness of the filing requirements for Americans who are living overseas. A recent survey by tax services provider H&R Block found that only 19% of the Americans who are filing feel that they have a strong understanding of their tax obligations - and that doesn’t include those who should be filing but aren’t. I suspect that many of our readers are in the 81% who are unsure, so we sought some expert advice to clarify the issue. Roland explains: “There are severe penalties facing US expats, but if they pay tax abroad there are offsetting credits so no US tax is payable for many. Most Americans living and working abroad have local checking or savings accounts, and if the value of any account exceeds US$10,000 at any point during the year they will also have to file a Report of Foreign Bank and Financial Accounts (FBAR). This is not a threshold that only high net worth individuals will pass. Most Americans living or working abroad have FBAR filing requirements. The vast majority of expats are law-abiding citizens who are making no attempt to evade taxes. Even

20 April 2014

if they have inadvertently not filed returns, most will owe nothing to the IRS. However, penalties are draconian for failure to file, up to $10,000 per account. The statute of limitations is 6 years, so a married couple who have a couple of ISAs, a pension account and a checking and savings account could potentially face $300,000 of civil penalties for non-wilful violations. It’s rare that the IRS takes these steps, but it is one of their options. Different kinds of US taxpayers working and living abroad need different assistance. For example people who have been filing themselves, but want to check they’re doing it right or need help, perhaps with foreign account reporting. Then there are people who may have just learned about their filing requirements and don’t know what to do. And there are high net worth individuals, maybe someone who has several million dollars in a Swiss bank account. The first two can get assistance from tax preparation companies here or in the US. The latter are probably better served by hiring a tax lawyer in addition to the tax firm in case a criminal investigation occurs. In that case, the law firm’s attorney-client privilege can be extended to the tax service

provider. What to do if you have not been filing: The IRS offers two voluntary disclosure programs for certain expats. Think carefully or take advice before choosing which to use. The Streamlined Compliance Program is designed for ‘low compliance risk’ expats, allowing an easy route to get back into compliance. You file tax returns for the last 3 years and foreign bank account reports for the last 6. If you meet several criteria indicating that you’re a low compliance risk, i.e. not attempting to avoid tax, the IRS will assess your returns and not go back any further. However if you neglect to divulge something that should be reported, or the IRS deems you to be a high compliance risk, they will examine your case further. The other IRS program is the Offshore Voluntary Disclosure Program (OVDP). You file tax returns and FBARs for the last 8 years, and pay all the tax you should have paid. Instead of any FBAR penalties as above, you pay a penalty of 27 1/2 percent of the maximum value of your combined foreign accounts during that 8 year period. This can be an extremely substantial penalty, especially for someone who has not been wilfully evading

The American April 2014  

The American has been published for Americans in Britain since 1976. It's also for Brits who like American culture.

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