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U.S. Citizens Abroad: What Happens If I Do Not File?



Some Americans who go abroad have already been non-compliant for years before they ever get on a plane. Others figure that since they won’t be within US borders, it would be impossible or highly impractical for the US government to take any realistic measures toward collection. Before you decide to take this route, it’s a good idea to fully understand the consequences you might encounter if you fail to file.

The first thing to understand is that anything you owe the U.S. that you don’t pay while living overseas is subject to 3.25% interest. Though imprisonment is unlikely, you could face fines. Nonpayment of taxes can not only hurt your finances, but your travel plans as well.

How do expatriates become compliant with the US tax system? The 1040 isn’t the only form you need to file. Many activities that seem benign would trigger specific filing requirements, and you may have to file these forms as well. The rules are the same for Americans living in the US, but Americans living abroad are much more likely to have these “foreign” activities.

These can bring about hefty fines – up to $10,000 – if they’re not turned in on time. These forms are:

 Form 5471. You must file this form if you own more than 50% of the stock of a foreign corporation (or in some cases 10%).

 Form 3520. You must file this form if you are the grantor or “substantial owner” of a foreign trust. While the word “trust” brings up the idea of wealthy families, the US tax rules see products such as the Canadian RESP (similar to a US 529 plan) or foreign retirement plans (similar to a 401(k)) as foreign trusts.

 Form 8621. This is for people who own stock in a Passive Foreign Investment Company (PFIC). In many cases, foreign mutual funds would also be classified as PFIC

Tax returns for Americans overseas are automatically given until June 15 to file, without having to request a special extension.

Have a tax question? Contact Olivier Wagner.

 

Olivier Wagner

Olivier Wagner

Certified Public Accountant, U.S. immigrant, expat, and perpetual traveler Olivier Wagner preaches the philosophy of being a worldly American. He uses his expertise to show you how to use 100% legal strategies (beyond traditionally maligned “tax havens”) to keep your income and assets safe from the IRS. Before obtaining my U.S. citizenship and traveling all over the world, he was born and raised in France. His experience learning the intricacies of the U.S. immigration process combined with his desire to travel freely lead me to specialize in taxes for Americans living and working abroad. He helps Americans Abroad file their taxes and devise strategies that make sense for their lifestyle. These strategies encompass all aspects of registering an offshore business, opening a bank account abroad, and planning out new residencies and citizenships. He is operating the accounting firm 1040 Abroad. 1040 Abroad exists to help you make sense of an incredibly large world of possibilities. Find out more by visiting www.1040abroad.com

4 thoughts on “U.S. Citizens Abroad: What Happens If I Do Not File?

  1. Host Kirchner says:

    You didn’t answer the question you posed: What happens if I do not file (as an accidental American or other dual national or expatriate living abroad). Correct answer: if you have no income, assets orbheirs in the USA and never go there (and if you live in Canada, Netherlands, Denmark, France or Sweden have a local passport): nothing. You and your heirs are beyond the reach of the IRS. U.S. tax lawyers and CPAs have nothing to offer you.

  2. Nononymous says:

    Time once again to remind readers that some US citizens abroad are protected from IRS penalties and should not enter the US tax system.

    If you are an expat with only US citizenship, or have US assets or income, then you should be careful – if you choose not be compliant, at least be aware of the risks.

    If however you are a dual citizen with no US financial ties – most typically an “Accidental American” who has US citizenship from birth or from parents, but who has not lived or worked in the US – then you should not enter the US tax system. The IRS has no ability to penalize you if you don’t have US assets or income; if you have citizenship in your country of residence, your own government will not assist the IRS with the collection of penalties or taxes owing. Tax compliance will only cost you time and, potentially, money. Stay off the radar.

    Due to FATCA, you may face restrictions on banking or investment services if you are identified as a US person. In some countries the banks are quite strict and you may have no choice but to renounce US citizenship if you wish to avoid discrimination. In other countries the banks are very relaxed and you only need to self-certify, in which case you simply deny being a US person.

    If you are identified by FATCA that only means that limited information is reported to the IRS, and you should not automatically assume that you need to enter the US tax system.

  3. DANIEL GRAY says:

    read https://www.linkedin.com/feed/update/urn:li:activity:6356566606163779584 on linkedin or at http://www.ustaxservices.ca/single-post/2018/01/09/One-Canadian-FBAR-horror-story-and-one-do-it-yourselfer-renunciation-at-fraction-of-lawyers-fees-and-no-consular-or-embassy-wait

    Also, when stating ‘Tax returns for Americans overseas are automatically given until June 15 to file, without having to request a special extension.’ it’s important to clarify that reference to the Treas Reg allowing such need be cited in the 1040 to attain the auto extension.

    • Nononymous says:

      Not sure what you’re trying to say with the post on your site that you linked to.

      The first link references the Dewees case, penalties assessed against a US citizen without Canadian citizenship living in Canada. That is one of the very few scenarios where a foreign government will assist the IRS in collecting US taxes. Also, for what it’s worth, Mr. Dewees received scandalously bad advice from his lawyer. (He would have been better off hiring a plumber.) There extensive analysis of Dewees at the Isaac Brock Society site and elsewhere.

      The second link is a funny story about someone who realized he could save money by flying to Mexico to renounce US citizenship before the fee increase went into effect. That certainly didn’t require a lawyer. I hope the individual in question did not become compliant with US taxes before or after he renounced, even if it only cost him accountant fees, because as I’m sure you know, compliance is not necessary for renunciation, if you don’t care about covered expatriate status.

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