The Tax Implications of Americans Abroad Moving Back to U.S.

The Tax Implications of Americans Abroad Moving Back to U.S.

For Americans Abroad Returning to the U.S.

It is not uncommon for taxpayers who are considered U.S. Citizens (or other U.S. Persons for Tax Purposes) to want to move overseas for work and/or travel the globe and experience wanderlust, especially when they are young  — or possibly after being faced with a life event such as the passing of a loved one. And, it is also not uncommon for Americans who have lived overseas to want to return to the United States at a later date. Presuming that the Americas did not formally renounce their U.S. citizenship via expatriation, returning to the U.S. can be as simple as jumping on a plane and moving back to the United States. In other words, there are no restrictions for U.S. citizens when it comes to how much time they are required to spend in the United States each year as there are restrictions for lawful permanent residents who have an annual U.S. residence requirement (subject to reentry permit exceptions). Unfortunately, many taxpayers who live overseas may have neglected their U.S. tax and foreign account reporting or simply have received incorrect advice about what continuing tax and international information reporting obligations they had when they were living overseas. Once the taxpayer wants to return to the United States, certain tax implications and consequences may follow that they did not foresee when they first left the United States as an expat in the first place. Let’s look at some of the common tax consequences for Americans returning to the United States after living overseas for an extended period.

First, Were U.S. Taxes Filed?

Unfortunately, when taxpayers move overseas sometimes, they get incorrect advice about their ongoing tax requirements. The United States follows a Citizenship-Based Taxation model for individuals and not a residence-based taxation model. What that means, is taxpayers who are Americans are still required to file U.S. tax returns each year. This is true, even if the taxpayer earned all their income overseas and all of their income is foreign sourced while the taxpayer may be able to claim foreign earned income exclusion and/or foreign tax credits, it does not eliminate the requirement that they file taxes each year as long as they meet the threshold requirements for having to file a tax return.

FEIE vs Non-Filing

Speaking of the foreign earned income exclusion, some taxpayers may have received incorrect advice that as long as they are below the foreign earned income exclusion amount they were not required to file a tax return– but this is incorrect. Taxpayers are required to file a tax return and then claim the foreign earned income exclusion by including Form 2555 with their tax return. The reason why this is so important is that if the taxpayer did not file returns and did not claim the exclusion then the IRS may not be aware that the exclusion applies. And, because in recent years the IRS has taken to issuing passport revocations and denials, taxpayers should be careful especially when they would be traveling back to the United States.

Foreign Institution Updated Address Sparks FATCA

For some taxpayers, when they return to the United States they will want to update their foreign financial institutions with their U.S. address. At that time, the foreign financial institution may begin reporting the U.S. person to the United States government in accordance with FATCA (Foreign Account Tax Compliance Act). FATCA only came into effect usually around 2014 for most countries so some expats may have signed up for their foreign accounts before this was a requirement of the foreign banks. But once the foreign bank receives the updated address information oftentimes this will serve as a catalyst for reporting.

Were FBAR and FATCA Reported

This leads to the next important issue, which is that taxpayers with foreign bank accounts and other foreign financial accounts and assets are required to report this information each year to the U.S. government on various international information reporting forms such as the FBAR. Taxpayers who did not report these accounts may be subject to extensive fines and penalties, noting, that there is currently a program in place called the Streamlined Foreign Offshore Procedures which allows non-willful taxpayers who qualify under the foreign residence rules for the streamlined procedures to get back into compliance and avoid having to pay any penalties on their failure to report.

Annual Reporting, Foreign Income

Another important fact for Americans returning to the United States is that the tax rules may have been different in the foreign country. Taxpayers should be sure to report both their foreign and domestic income on their U.S. tax returns, even if they are now living in the United States and the income generated overseas may be exempt in that foreign country. In addition, taxpayers should be aware that they will not qualify for the foreign earned income exclusion once they are residing in the United States but if they are paying foreign taxes on the income or taxes are being withheld in the foreign country they may qualify for the foreign tax credit — which may reduce or eliminate any tax liability.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

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 who 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

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

This resource may help taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

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.


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