Robert W. Wood – U.S. citizens abroad face an array of tax compliance dilemmas for themselves and their families. Americans must report their worldwide income regardless of whether they are paying local taxes where they live. They also must report their non-U.S. bank accounts on FBARs (now FinCEN Form 114) and file the FATCA Form 8938.
Unfortunately, many U.S. citizens living abroad are not compliant with the requirements for U.S. tax returns, FBARs, and Forms 8938. FATCA is not the only problem, but it has certainly made the situation worse. It is causing many expats to lose their banking relationships, home loans, and more. Sadly, it is causing some to give up U.S. citizenship.
FATCA Bank Notices. Many people are receiving notices from non-U.S. banks about certifying their U.S. compliance. Precisely how, whether and when to respond can be delicate.
IRS Streamlined Program. For expats who qualify, the IRS Streamlined Program is a simple and inexpensive way to correct past problems. It can be ideal for a U.S. citizen living (and paying local tax) abroad with minimal tax owed to the U.S. The program involves filing U.S. tax returns for the last 3 years, FBARs for the last 6 years, and paying no penalties. Of course, once the person enters this program, he or she must remain in compliance with U.S. tax filing thereafter–unless he or she expatriates.
IRS Offshore Voluntary Disclosure Program (OVDP). This program is the primary one for taxpayers who want to come into compliance with the IRS. It is far broader and more inclusive than the IRS Streamlined Program. It involves filing up to 8 years of tax returns (or amended tax returns) and 8 FBARs. The client pays taxes, interest and a 20% penalty. Moreover, at the end of the case, the client pays an aggregate 27.5% penalty on the highest aggregate balance of the noncompliant accounts.