Most U.S. Expats Do Not File Correct U.S. Tax Returns

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Written by Ephraim Moss | Posted in Exit Tax • Expatriate • FATCA • Individual • International

By Ephraim Moss, Esq. & Joshua Ashman, CPA

For most U.S. citizens living abroad, life is pretty good – at least that’s what the latest statistics are telling us. In a 2015 survey of thousands of expats worldwide, a whopping 81% responded that they are generally happy with life overseas.

At the risk of spoiling this picture of expat bliss, further statistics show, however, that most U.S. expats are failing quite miserably in the area of tax compliance.

The reason is basically two-fold. First, there are millions of U.S. citizens living abroad that simply don’t file returns despite their continuing obligation to do so. Many of these expats are uninformed, misinformed, or just don’t care enough to file their returns. With the advent of the now prominent FATCA law, it will become increasingly harder for the non-compliant to escape the ever-extending reach of the IRS, which is becoming increasingly impatient with taxpayer excuses.

Second, statistics further show that tax returns in general are more often than not filed incorrectly. A recent study by the Government Accountability Office found that preparer-filed returns showed an error rate of 60 percent, while self-prepared returns showed a 50 percent error rate. The high rate of preparer-filed returns was significantly influenced by the study’s inclusion of non-qualified return preparers.

Expatriate taxpayers are particularly susceptible to errors because of the complex international issues and additional reporting requirements that can significantly affect the tax return of a U.S. citizen living abroad. For example, U.S taxpayers that have an interest in specified foreign financial assets and meet the reporting threshold, must report their foreign financial assets under FATCA. Furthermore, all U.S. persons that have an aggregate interest of $10,000 or more in foreign financial accounts must file FinCEN Form 114 (FBAR). A number of other forms may be required depending on the circumstances.Penalties for non-compliance can be severe.

On the flipside, there may be a number of unused provisions available to expat taxpayers that can reduce the tax burden or even generate a refund from the IRS.

Ephraim Moss

Mr. Moss is a Tax partner in a boutique U.S. tax firm specializing in the areas of international taxation and expatriate taxation. The practice focuses on servicing U.S. individuals and small business located outside the U.S. with their U.S. and international tax matters and includes both tax planning as well as annual tax compliance (tax return preparation). He has extensive experience with filing delinquent returns under the IRS Streamlined procedure, FBARs, FATCA reporting (Form 8938), reporting interests in foreign corporations (Form 5471) and partnerships (Form 8865) as well as foreign trust reporting (Form 3520 and Form 3520/A). He works very closely with clients utilizing the various international tax treaties in order to maximize benefits through smart tax planning. Previously he held a senior position in the international tax practice of Ernst & Young. He is an attorney licensed in the State of New York.