2014 U.S. Tax Reminders for U.S. Citizens Abroad — Updated

July 21, 2014
Karen A. Monroe & Olga Larionova

Filing 2013 returns

If you are a U.S. citizen or resident alien (green card holder) residing outside the U.S. on the regular due date of your return, which is usually April 15 in the year following the tax year, you are allowed an automatic two-month extension to file your return and pay any amount due without requesting an extension from the IRS. Therefore for calendar year returns, the automatic 2-month extension deadline is June 15.

If you are unable to file by June 15 you can request an additional extension until October 15 by filing Form 4868 before June 15. However, any tax due and not paid by June 15 will be subject to interest charges and failure to pay penalties, which can be expensive. For U.S. citizens or resident aliens living outside the U.S., the address for mailing your return is: Department of the Treasury, International Revenue Service, Austin, TX 73301-0215. Here is more information about filing your returns with a link to the Form 4868:

http://www.irs.gov/Individuals/International-Taxpayers/U.S.-Citizens-and-Resident-Aliens-Abroad

FATCA/ “New” Form 8938

“Thanks” to FATCA there is another form that might need to be filed by all U.S. citizens with the 2013 tax return if the threshold amount of “specified foreign financial assets” exceeds a certain limit.

If you are a U.S. taxpayer living outside the U.S. you must file the form 8938 if:

  • You are filing a return other than a joint return and the total value of your specified foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year; or
  • You are filing a joint return and the value of your specified foreign assets is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

For most people meeting the threshold the first tax year in which this new form applied was 2011. This new form also applies to U.S. citizens living in the U.S. U.S. citizens who are living in the U.S. are subject to different (lesser) thresholds. Here is more information about the form, thresholds, and definition of “specified foreign financial assets”:

http://www.irs.gov/Businesses/Corporations/InformationforUSTaxpayers

FBARs

FBARs (Foreign Bank Account Reports) need to be filed by all U.S. citizens and green card holders who hold financial account(s) (which is broadly defined) not physically located in the U.S. and which accounts had during any calendar year more than US$10,000 in the aggregate in the foreign account. The FBAR must be filed before June 30 of the following calendar year. This applies to the U.S. taxpayer whether the beneficial owner of the account(s) or only having signatory authority over the account(s).

If one has, for example, two accounts, each with US$5,000, then an FBAR needs to be filed. Once the filing obligation is triggered during any calendar year, then ALL accounts held outside the U.S. must be reported, no matter what the amount. To complete the FBAR one goes through all of his or her foreign accounts and must list the HIGHEST amount in that account during the year, not just, for example, the highest bank balance on the monthly statement. The form also requires bank name, address, and account number. Even if one does not have beneficial interest over the foreign account and only signing authority, in general, the person having signing authority must also file an FBAR for that account(s).

The FBAR is due on or before June 30 of each year AND THERE ARE NO EXTENSIONS. It is not filed with your income tax return, and there are no taxes due in connection with the FBAR filing. However, if you hold a non-U.S. account, your income tax return filing requires that you check a box which asks if you have a non-U.S. account. The concern about the FBAR is the potential for a substantial penalty even if there was no U.S. income tax liability for the year:

A person who is required to file an FBAR and fails to properly file may be subject to a civil penalty not to exceed $10,000 per violation. If there is reasonable cause for the failure and the balance in the account is properly reported, no penalty will be imposed. A person who willfully fails to report an account or accounts identifying information may be subject to a civil monetary penalty equal to the greater of $100,000 or 50 percent of the balance in the account at the time of the violation. Willful violations may also be subject to criminal penalties.

Starting July 1, 2013, FBARS must be filed electronically/online.

You can find FBAR E-Filing System website:

http://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html

Instructions:

http://www.fincen.gov/forms/files/FBAR%20Line%20Item%20Filing%20Instructions.pdf

U.S. citizens living abroad who have not filed tax returns or FBARs

The IRS in June 2012 issued a press release that effective September 1, 2012, there would be new “streamline” procedures for U.S. taxpayers living abroad who have not filed tax returns or filed FBARs and are considered “low-compliance risk.”

Most U.S. taxpayers living outside the U.S. and paying taxes in their country of residence are in this group. This procedure requires tax return filings for the prior three years and FBARS for the last 6 years. If you fall within this group, then you need to file returns for 2011, 2012 and 2013, and FBARS for 2008, 2009, 2010, 2011, 2012, and 2013 to be up to date.

See here for the instructions for U.S. taxpayers living abroad:

http://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-Outside-the-United-States

In June 2014 the IRS announced changes to the “Streamlined Filing Compliance Procedure” (SFCP). The eligibility to participate in the program was extended to taxpayers residing in the U.S. Further, SFCP eliminated the requirement that the applicant has at most $1,500 of taxes due per year. See here the new instructions:

http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures

In particular a certification of non-willful conduct needs to be submitted as part of the new “streamlined” procedures:

http://www.irs.gov/pub/irs-utl/CertNonResidents.pdf

There are also changes in the Offshore Voluntary Disclosure Program (“OVDP”) which became effective in January 2012--the third in a series but unlike the two predecessor OVDP programs, there is no stated deadline for entering the program. A summary of the 2012 OVDP and the changes announced in June 2014 are outside the scope of this tax reminder summary. See press release announcing changes here:

http://www.irs.gov/uac/Newsroom/IRS-Makes-Changes-to-Offshore-Programs%3B-Revisions-Ease-Burden-and-Help-More-Taxpayers-Come-into-Compliance

General tax information: General information Publication 54 (2013), Tax Guide for U.S. Citizens and Resident Aliens Abroad, available here:

http://www.irs.gov/pub/irs-pdf/p54.pdf