1. I have not filed for more than 5 years. What are my options now?
The best thing to do now is file your income taxes now and pay any related
penalties and interest. Although you have to file only for those years where
your earned income was more than a specified amount for that year or $400 if
you are self employed, we recommend filing for all past years to establish a
3-year statute of limitation break on your filing history.
15. What is one of the most common mistakes by taxpayers living abroad?
Not reporting your bank accounts abroad. This applies to any person that has
a financial interest in, signature authority or other authority over any
financial account (s) in a foreign country and the aggregate value of these
account(s) exceeds $10,000 at any time during the calendar year. Not reporting
can make you subject to civil and criminal penalties, and penalties of up to
18. What is this tax form called the Foreign Bank Account Report? When do I
submit the form?
You are required to fill out the Foreign Bank Account Report
(Form TD F 90-22.1) to disclose accounts you hold in foreign banks and other
financial institutions if your total balance of all accounts is $10,000 or
greater at any point during the year. The form has to be submitted with the US
Treasury Department by June 30, 2009. You will have to provide information on
all your financial accounts held in a foreign country including bank accounts
(checking and savings), investment accounts, mutual funds, retirement accounts,
and securities and other brokerage accounts.
The instructions for filling out Form TD F 90-22.1 state that every US
citizen or resident alien, partnership, corporation, estate, or trust must file
TD F 90-22.1 if they have ''financial interest in or signature authority, or
other authority over any financial accounts, including bank, securities, or
other types of financial accounts in a foreign country, if the aggregate value
of these financial accounts exceeds $10,000 at any time during the calendar
It is very important that your report must be received by the due date (June
30). The FBAR is not an income tax return and should not be mailed with any income tax returns.
The FBAR must be filed on or before June 30 of the following year to: U.S. Department of the Treasury, P.O. Box 32621, Detroit, MI 48232-0621.
Penalties will be assessed for failing to file this report and as they are
quite harsh, we recommend that you make the effort even if you missed the filing
There are exceptions to this rule. You do not need to report accounts held at
US military banking facilities or if your banks are located in Guam, Puerto
Rico, and the US Virgin Islands. There are also no need to report US-based
accounts held by a branch or division of a foreign bank.
19. I am a New Yorker living in Czech Republic. I have always been paying taxes
to the US. The first time I have heard of the Foreign Bank Account Report was
last month. I heard that tough action is being threatened against those who do
not file the form. What do I do now?
If you do not have sufficient time to get the information required for filing
the FBAR on or before June 30, 2009, you should file the delinquent FBAR report
as soon as possible. Attach a statement to explain why the report was filed
late. Send a copy of this delinquent FBAR, along with a copy of the 2008 tax
return, by Sept. 23, 2009, to the Philadelphia Offshore Identification Unit.
Provided all your taxable income was reported, you will not be imposed a penalty
for your failure to file on time.
On June 24, 2009, the IRS offered the following advice:
Taxpayers who reported and paid tax on all their 2008 taxable income, but
only recently learned of their FBAR filing obligation and have insufficient time
to gather the necessary information to complete the FBAR, should file the
delinquent FBAR report according to the instructions and attach a statement
explaining why the report is filed late.
20. I am an expat living in Italy. This is the first year that I will be required
to pay taxes as a US citizen living in a foreign country. My employer has been
generous enough to pay many of my expenses here, including the rent, utilities,
education of my 2 kids, as well as insurance and taxes associated with my living
here. Can I use these for exemptions? What is the maximum limit?
What you are referring to is the Foreign Earned Income Exclusion. The
expenses you mentioned can be applied towards the foreign earned income
exclusion up to the maximum amount for the year ($91,400 for 2010) as long as
they were included in your taxable foreign earned income. The following
expenses qualify for the exclusion: rent, Fair rental value of housing provided
by your employer, repairs, utilities other than telephone, real property and
personal property insurance (homeowners & renters insurance), occupancy taxes,
nonrefundable security deposits or lease payments, furniture rental, residential
parking fees, tax equalization payments paid by your employer, education
expenses for your dependent children.
21. I have made a voluntary disclosure of my tax obligations and was asked to pay
a 20% offshore penalty. Should I pay this penalty? Is it negotiable?
The 20% penalty is far less than the penalty if you do not follow the amnesty
program, and is not negotiable for the most part. However, according to the New
Foreign Bank Account Report (FBAR) FAQs issued by the IRS on June 25, 2009, if
any part of the penalty structure is unacceptable to a taxpayer, that case will
follow the standard audit process. All relevant years and issues will be subject
to a complete examination. At the conclusion of the examination, all applicable
penalties (including information return and FBAR penalties) will be imposed.
The IRS added that these penalties may be greater than the 20% penalty
initially calculated. You do not have any options if you want to get up to date
with your responsibilities as a US taxpayer.
23. I already pay taxes in Norway where I have been staying for the past 4 years.
What can you tell me about foreign tax credit?
You can claim a credit for taxes that you have paid in a foreign country. Not
included in this computation are the taxes paid on any income, which has been
excluded from US taxation using the foreign earned income exclusion or the
foreign housing exclusion. A tax credit is more valuable than a deduction since
a tax credit reduces your liability on a dollar-for-dollar basis. Get your total
foreign-source income and divide it by your total worldwide income. This
resulting percentage, when multiplied with your US tax liability, must not
exceed your foreign tax credit.
If your foreign tax credit is higher than your limit, you may be able to
carry the excess credit over to the next year or you may even apply it to one of
the previous two years.
Not all types of taxes qualify for the foreign tax credit. The IRS says that
four qualifications have to be met. The tax should be imposed on you (and not
the employer); the tax must be owed or already paid by you; the tax has to be
legal; and the tax is based on income that you earned.
24. How do I know if I have to file a state return?
In many cases, you will not need to file a State Income Tax Return; however,
each State has its own rules and some states require you file a Tax Return even
if you have moved abroad. We will check the rules for your state when preparing
your Federal Return and let you know if you need to file a State Return.
25. Do I have to pay tax on a gift received from my foreign friend?
It depends on whether your friend is a US resident or not. If he, like yourself, is a US resident living in a foreign country, then gift rules are the same as for US gift - you do not pay tax on any gift amount and the giver pays gift tax on the amount over $13,000 (for 2011).
If he is a non-US resident, then you are not paying tax but must report the gift to IRS if its value exceeds $100,000.
Your friend, though, should consult the local tax specialist on what tax consequences his gift will have in that country. You can find more
details at theIRS
26. I am an American living in the UK. How will the residence changes affect me?
Your residence position is based on how many days you physically spend in the
UK (with every day you are in the UK at midnight being counted as a day for
these purposes) as well as your longer term intentions. Any individual coming to
the UK intending to stay for at least 3 years will be regarded as resident and
ordinarily resident in the UK from the date they arrive. If you are only
intending to stay for between 2 and 3 years it is possible you could be regarded
as resident but not ordinarily resident as long as you abide by certain rules
such as not purchasing a property in the UK. If you come to the UK intending to
stay less than 2 year your residence position would be based on the number of
days spent in the UK, as long as you were physically present here for less than
183 days in any tax year (UK tax years run from 6 April to 5 April) you would
not be regarded as resident in the UK.
Your residence position is important when considering how foreign income is
taxed in the UK while your UK earned income is taxed in the UK regardless of
your residence position.