The United States is unusual because it’s citizens remain subject to US tax law, even if they are living and working outside the US. They may therefore have to file a US Federal Tax Return even though they have no US income, whilst living and work outside the United States. Furthermore, if you were born in the US to non-US parents, you will be a US citizen.

Common reasons for US citizens believing that they are not required to file a Federal Tax Return:

  • Their earnings are less than the annual foreign earned income exclusion, currently $112,000 (2022)
  • Although born in the US, they do not have a US passport or have never used their US passport
  • They have a US parent but have never lived in the US
  • They pay tax on all their income in the UK

All these arguments are misplaced! The $112,000 (2022) exclusion must be claimed on a Federal Tax Return. Not owning or using a US passport, or never having lived in the US, does not indicate that you are not a US citizen, etc, etc….

However, these and other views do prevail in a lot of cases, and there are large numbers of US citizens who are not filing Federal Tax Returns where they do have a filing obligation. The IRS realise this and have provided opportunities for individuals who have not been filing their Tax Returns, due to bad advice or a misunderstanding of the rules, to bring their tax affairs up to date. This policy, along with some of the recent changes introduced concerning non-US financial institutions where they are obliged to notify the US government of any US citizens with whom they do business, represents a serious effort to improve the compliance of US persons living outside the US.

If you have not been filing Federal Tax Returns because of a misunderstanding or bad advice, then you should consider using the Streamlined Offshore Disclosure Program. However, eligibility for this program is contingent on you declaring that:

  • You have been physically present outside the US for 330 full days in at least one of the last three years where your Tax Return is delinquent.
  • Your failure to file was “non-wilful”.

If you meet these tests, you must prepare and file the following documents:

  • The previous three years of delinquent Federal Tax Returns
  • The previous six years of delinquent Foreign Bank Account Reports (FBARs)
  • Form 14653 – Streamlined Offshore Disclosure statement

If you owe any tax, this will be payable along with interest charged from the original due date of the tax payment. If you have been paying tax to another country, then the tax due may not be too onerous. The greatest benefit to filing under the Streamlined Procedure is that there will be no penalties.  This includes late filing, late payment and FBAR penalties.

This is a very helpful option that has been used without any drama by many US citizens.

Of course, there are many other possible scenarios, and if you are uncertain or if you know that you are a US person who lives overseas and did not realize you needed to file US tax returns, or if you have only just discovered that you are a US citizen and are struggling to come to terms with the fact that you have needed to file US tax returns, then please contact us to arrange a meeting with one of our US tax advisors as soon as possible to discuss your potential exposure to US Federal taxes.