Why it’s a good idea
The Streamlined Procedure is an excellent option for Americans living abroad who haven’t been filing their US tax returns for two very good reasons. If the IRS find you before you have filed, firstly, you may be liable for huge fines, and secondly, you may not be able to claim the Foreign Earned Income Exclusion, which lets you exclude up to the first around $100,000 of your foreign earned income from US tax.
As such, regardless of whether the US and your country of residence have a tax treaty, or whether you’re already paying tax in another country, you may have to pay US tax on your worldwide income too. It may not sound fair, but that’s the way the US tax system rolls.
“Tax experts said the revised amnesty program is long overdue because it significantly reduces the potential financial risk for people who want to start filing.”
- The Globe and Mail
How to do it
Americans living abroad have extra tax filing requirements that Americans living stateside don’t. For example, FATCA also requires Americans with assets abroad above a certain net value to declare them using form 8938. Also, Americans with foreign bank and/or investment accounts which have a total balance of $10,000 or more between them at any time during a tax year have to file an FBAR (Foreign Bank Account Report). The penalties for not filing (or for incorrect filing) of FBARs are sky-high.
To claim the Streamlined Procedure, you have to file your last three years’ tax returns (and pay any tax due, though most expats are eligible for one or more exclusions or exemptions that often take them out of US tax liability completely), and your last six years’ FBARs, and also self-certify that your previous non-compliance was non-willful.