Should Expats Amend Taxes to Include Foreign Income & Assets

Should Expats Amend Taxes to Include Foreign Income & Assets

Overseas Americans Amending US Income Tax Returns

When an American Taxpayer, such as a US Citizen or Lawful Permanent Resident resides overseas, they are considered to be an Expat or ‘Overseas American.’ But, from a US tax perspective, just because a US person resides overseas does not mean they can escape the tax clutches of the United States. Unlike most countries across the globe, the United States follows a worldwide income taxation model (aka Citizenship-Based Taxation or CBT). Unfortunately, though, the term is a misnomer since it includes more than just US citizens. The tax rules can be very complicated and even when an overseas American has filed a US tax return. Under most circumstances, if the tax return was inaccurate, they may have to amend the previously filed income tax returns. Let’s take a brief look at five important facts for overseas Americans amending US income tax returns.

Statute of Limitations

In general, there is a three-year statute of limitations for the IRS to audit a tax return. Therefore, depending on the nature of the mistake, the taxpayer must first evaluate whether amending a tax return is even necessary. For example, did they only miss a few dollars of income, and overall the mistakes in the return are insufficient to extend the statute of limitation — or is there a significant amount of income missing that would mandate filing an amended return.

*It is important to note, that some scenarios will extend the statute of limitation for an audit the six years such as when there is more than $5,000 of income generated from certain foreign assets.

Unfiled Forms and Statutes of Limitation

If the taxpayer does not file a tax return and then wants to file a late tax return that is different than filing an amended tax return. If a taxpayer did not yet file an original tax return, then the statute of limitations does not begin to commence until the form is filed. This is also true for certain forms within the return. For example, if there was a Form 3520 that was required to be filed, but was not filed, the statute of limitation for following that form does not begin until the form is filed.

Form 8938 Has Different Threshold Requirements

When a person is an overseas American, is required to an original tax return, has significant Foreign assets, and fails to include Form 8938 to report the foreign assets — they are required to include the form when they amend. It is important to note that the threshold requirements for filing Form 8938 for an overseas American are different than for a US taxpayer located in the United States – it also varies based on whether or not the taxpayer files single/separately vs jointly.

FBAR has the Same Threshold Requirements

One important factor to keep in mind is that while the Form 8938 filing threshold requirements very varies based on the location of the Taxpayer and filing status, the FBAR threshold requirement of more than $10,000 remains the same whether the taxpayer resides in the United States or is in overseas American.

Limited Time to Claim Refund 

When a Taxpayer files an amended return or even an original return late, it is important to keep in mind that there is only a limited amount of time to claim a refund.

The amount of time to claim a refund for any overpayment is as follows:

      • Claim must be filed within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid.

Streamlined Procedures for Expats May Avoid Penalties (and Taxes)

The US government developed a special program for taxpayers who are non-willful and reside overseas — it is referred to as the Streamlined Foreign Offshore Procedures. Overseas taxpayers may qualify, even if they did not fi;e original tax returns (or just need to amend the original tax returns) Under the Streamlined Foreign Offshore Procedures, taxpayers can avoid all penalties and can still qualify to apply for the foreign earned income exclusion and foreign tax credits to any tax liability due.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure

Contact our firm today for assistance.