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Why You Shouldn’t Self-File Your U.S. Expat Tax Return



Ephraim Moss

As this year’s tax season heads towards its end, we continue to see more and more self-filers who have received notices from the IRS reassessing their tax liabilities due to mistakes or miscalculations on their original returns. In many cases, the filers should have no tax liability, but a missing form or incorrect information triggers a hefty IRS tax bill.

The best way to avoid the IRS’s attention, of course, is to make sure you’ve filed correctly. In the case of an expat tax return, which often involves tricky international tax aspects, the smart way to ensure an accurate return is to enlist the help of an expat tax return expert.

The Risk of Inaccuracy

In a previous blog, we demonstrated how tax returns in general are more often than not filed incorrectly. We included a study by the Government Accountability Office, which found that self-prepared returns showed a whopping 50-percent error rate.

Expat 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 and that 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.

Client Fact Pattern

Case in point – just this past week, a U.S. expat who self-prepares his returns approached us because he had received a notice from the IRS. The taxpayer, now a client, earned income outside of the United States during 2015 that was greater than the Foreign Earned Income Exclusion, so he needed to utilize both the FEIE and foreign tax credit to eliminate his U.S. taxable liability.

Due to a misfiling of the forms associated with the FEIE and foreign tax credit, the IRS reassessed the taxpayer’s tax liability, resulting in a $5,000 tax bill, with penalties and interest. After contacting us, we were able to resolve the matter with the IRS with no tax due.

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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.