As we move into the heart of the U.S. income tax filing season, U.S. citizens who reside abroad have a host of special rules and regulations to comply with. We thought it would be helpful to highlight some of them in this article to help you prepare to file. Included throughout are a number of helpful links.
Filing 2015 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. However, interest will accrue on any taxes due, but not penalties. 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 anadditional extension until October 15 by filing Form 4868 before June 15. However, interest charges on any tax due will continue to accrue from April 15 as will failure to pay penalties from June 15, 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, Internal Revenue Service, Austin, TX 73301-0215. For more information about filing your returns, including Form 4868 click here.
FATCA and Form 8938:
Under FATCA (Foreign Account Tax Compliance Act) there is another form that might need to be filed by all U.S. citizens with the 2015 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.
For more information about the form, thresholds, and definition of "specified foreign financial assets" click here.
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). Some changes of the due dates were adopted in 2015. The standard FBAR due date was changed to April 15 beginning with the 2016 calendar year reports, which are due in 2017.
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, 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, 2016 for 2015 and there are no extensions. It is notfiled 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 (Schedule B). 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 are required to be filed electronically/online.
You can find FBAR E-Filing System here.
And FBAR instructions here.
U.S. citizens living abroad who have not filed tax returns or FBARs:
As of September 1, 2012, a new "streamlined" procedures for U.S. taxpayers living abroad who have not filed tax returns or filed FBARs and are considered "low-compliance risk" went into effect.
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 six years. If you fall within this group, then you need to file returns for 2013, 2014 and 2015, and FBARS for 2010, 2011, 2012, 2013, 2014, and 2015 to be up to date.
You may find the instructions for U.S. taxpayers living abroad here.
In June 2014 the eligibility to participate in the program was extended to taxpayers residing in the U.S., and the requirement that the applicant has at most $1,500 of taxes due per year was eliminated. See the new instructions here.
In particular a certification of non-willful conduct needs to be submitted as part of the new "streamlined" procedures.
There are also changes in the Offshore Voluntary Disclosure Program ("OVDP") which became effective in January 2012. 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 but more information from the IRS can be found here.
General tax information: A good resource on these areas, the IRS Tax Guide for U.S. Citizens and Resident Aliens Abroad, can be found here.
About the authors:
Karen A. Monroe is a partner, and Olga Larionova is an associate, in Wilk Auslander's Geneva, Switzerland office. Their practice focuses on advising European companies doing business in U.S., as well as U.S. companies with operations in Europe. They counsel clients on a range of corporate and intellectual property matters, including business and personal tax issues.