It is quite easy for U.S. Citizens and permanent residents (green card holders) who reside in a country other than the U.S. to either forget or not be aware of their U.S. tax obligations. The rules for filing income, estate and gift tax returns and for paying estimated tax are generally the same even if you do not live in the U.S. Citizens and permanent residents of the US are taxed on their worldwide income. Your income is reportable even if you did not receive a form W-2 or Form 1099. (See Publication 525, Taxable and Nontaxable Income for more information.)

The increased attention by the US government on its overseas citizens might have caught your attention especially with the introduction of the Foreign Accounts Tax Compliance Act (FATCA) in 2010, which targets tax non-compliance by US taxpayers with foreign accounts.

In an effort to stimulate voluntary compliance the IRS announced new streamlined filing compliance procedures for non-resident U.S. taxpayers with effect from Sept. 1, 2012. According to the IRS:

“These procedures are being implemented in recognition that some   U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), Form TD F 90-22.1, but have recently become aware of their filing obligations and now seek to come into compliance with the law. These new procedures are for non-residents including, but not limited to, dual citizens who have not filed U.S. income tax and information returns.”

There are restrictions for this program and to qualify you must:

• Be a non-resident U.S. taxpayer
• Have resided outside of the U.S. since January 1, 2009
• Have not filed a U.S. tax return during the same period and
• Present a low level of compliance risk.

If you file amended returns under this program, the returns may be considered high risk. If you need to file an amended return, The IRS recommends using the Offshore Voluntary Disclosure Program, depending on your circumstances.

The new streamlined procedure offers the following for those who qualify:

• The review will be expedited
• The IRS will not assert penalties or pursue follow-up actions.
• Filing of delinquent tax returns with related information returns for the past three years.
• Filing of delinquent FBARs (Report of foreign bank and financial account) for the past six years.

If taxes and interest are owed it must be remitted along with the delinquent returns. (For a summary of information about federal income tax return and FBAR filing requirements and potential penalties, see IRS Fact Sheet FS-2011-13. (December 2011).

You may be thinking that you are already paying taxes in the country where you are now living and therefore not obligated to pay taxes to the U.S. as well. According to the IRS:

“A green card holder is considered to be a resident of the U.S. for U.S. income tax purposes and is therefore subject to U.S. taxes on worldwide income. If there is no income tax treaty between your country of residence and the U.S., you must pay taxes to both countries. You generally will get a tax credit against either your U.S. taxes or your foreign income taxes, depending on your particular circumstances, so you will not be subject to double taxation. If the country where you are living has an income tax treaty with the U.S., the treaty may contain so-called “tie-breaker rules” to determine which country will be treated as the country of your residence for income tax purposes. Usually, the location of the individual’s permanent home or the center of the individual’s vital interests determines resident status.”

In summary, if you have been delinquent with your taxes, living overseas does not provide relief from your obligations. Given the increased efforts on the part of the U.S. government to discover delinquent U.S. taxpayers worldwide and the increased pressures on foreign governments and financial institutions imposed by FATCA, it is in your best interest to comply voluntarily before the IRS discovers your delinquency.

References
http://www.irs.gov/uac/Examples-of-Nonfiler-Investigations-Fiscal-Year-2014
http://www.irs.gov/uac/Instructions-for-New-Streamlined-Filing-Compliance-Procedures-for-Non-Resident-Non-Filer-US-Taxpayers
http://www.irs.gov/pub/irs-pdf/p4588.pdf

In accordance with Circular 230 Disclosure